Compensation incentives are there for a reason. Acting according to them just means fulfilling the shareholders wishes. (Unless the shareholders are idiots or impotent and the board set the wrong incentives.)
Running a riskier strategy that fails under a pandemic is a perfectly cromulent business decision to make. Shareholders and creditors knew what they were in for.
Not all gambles pay off. That doesn't mean taking on any risk whatsoever is wrong.
That's quite a big leap. Humans are exceptionally good at gaming objective metrics if that's all that matters... setting the right incentives is by no means something any non-idiot can do; it's in fact exceptionally rare to find people able to set right incentives for an entire organization (or for it's leadership; if the leadership doesn't inherently have the right motivation, I don't actually think you can fix that via a set of incentives; probably the best you can do is constantly-modifying incentives, tracking aggressively any sign of misaligned motivation etc)
However, CEO and shareholders are playing a repeated game here. So they can retro-actively reward last years performance by giving more (or less) money for next year.
Mostly, shareholders do want CEOs to take some amount of risk. And giving your CEO eg stock options means you want to encourage risk taking.
If you want your CEO to be careful, you pay them in eg long term company debt instead.
Exactly how you align the precise risk appetites is a harder problem. And there might be some loopholes clever management can exploit. But the broad strokes are clear.
I think that's OP's point: the board should understand that, and set them appropriately.
Large investors have stock in many companies. Some are low-risk, some are high-risk. Ideally, these will balance each other out. In theory, this allows large, publicly-traded companies to do risky things. Amazon was a great example of this for years.
The problem is that some companies are perceived as risky or not-risky by different investors.
If 30% of their shareholders want a conservative strategy and 30% of them want a risky strategy, the conservative shareholders will always win because it's easier to build a coalition around "don't do anything" than it is around "do something". "Do something" can mean any one of a billion different strategies, and it's very hard to get a large group to agree on one.
Though it's not just odds and payoff, but also risk appetite. There's something like risk-aversion, and a corresponding risk-return-tradeoff.
But unless we have evidence to the contrary, we can assume that the shareholders are broadly risk-neutral. Especially since lots of shareholding these days is via widely diversified index funds, who don't need to care whether a any single company they hold goes bankrupt as long as the expected value of gambles they take are positive.
Except there are low and high risk index funds as well. Just because you're invested through a passive index fund, doesn't mean you're risk-neutral.
As an investor, you can also always just add leverage to your index fund holding, if you want more risk. If your jurisdiction allows you, that is.
Huh?
Many people hold both bonds and stocks and other assets, like real estate.
Index funds give you broad diversification at low fees. That diversification mostly removes out company-specific idiosyncratic risk, but it still leaves you exposed to market risk, and no one in their right mind claims otherwise.
Even a risk averse person (and even more a risk neutral person) can rationally hold on to very risky assets. Risk aversion just means that you require a higher return for a given level of risk.
And a risk neutral person doesn't care at all about risk, they only care about expected returns. That's mostly a convenient abstraction like the famous home economicus.
I don't understand why a risk neutral person would want to prefer bonds and cash?
I don't know if that makes shareholders and board members "idiots," just that it's something the firm probably should've worked to mitigate a bit more effectively.
Example: EHI is still holding on, and they (from my understanding based on employees I've spoken with) had continuity planning in place for situations that might've significantly impaired travel.
Same with insurance, which is why there are many cases where insurance is a requirement (usually cases where people dismiss the risk).