Is Your Board Prepared for a Crisis?

board-crisis

One of the most important jobs for the board of directors of any company is to preserve and protect the assets of their organisation of which the firm’s reputation is considered its most valuable resource. Accordingly, when a company is confronted with a crisis, its board should be very concerned. That’s because a crisis is an anathema to a firm’s reputation. And if it is handled poorly, the situation will usually only get worse, garnering unwanted and unfavorable attention by either the media or a regulator.

Needless to say, corporations everywhere are surrounded with a countless array of both potential and sudden crises: CEO misconduct, rogue executives, fraudulent activities, major product failures, environmental incidents, cyber/terrorist/social media attacks, persistent financial problems…it’s an endless list. And when one of them hits, and one of them will eventually hit most corporations, chances are the affected organisation will only have a few hours to respond appropriately. In the process, a major crisis will reveal the organisation’s preparedness and responsiveness and it will demonstrate both the authenticity of the firm’s values as well as the quality of its leadership. Time also seems to speed up in a crisis and if serious mistakes and missteps are made, it can plunge the organisation into chaos, destroy its reputation and even force its closure. Thanks to social media, there is usually little wiggle room available when expected response times shrink from days and hours to even minutes.

It is for these reasons that boards need to have reasonable assurance that their organisation is well-equipped to handle a crisis when it occurs. Gaining such assurance is part of their “oversight responsibilities” as governors and fiduciaries of their companies. Yet amazingly, one survey of CEOs recently reported that, while most believed their organisation would experience a crisis of some sort in the next year, approximately half claimed their organisations were unprepared to handle it. And, of those prepared, many said their plans were seriously deficient. With so much at stake, boards simply cannot allow their firms to be part of these shocking statistics! Savvy boards therefore need to evaluate their organisation’s capacity to effectively deal with a crisis both before and when it occurs.

The Before Part

In the “before” part, it’s absolutely vital that the mass of crisis preparedness work be done up-front. Boards need to routinely assess their organisation’s ability to identify, manage, monitor and mitigate those major risks which have the potential to turn into a crisis. In other words, the best crisis management systems are ones in which the crisis never happens (due to brilliant crisis mitigation maneuvers) or, if it does, few hear about it. To help make that happen, boards should look for a crisis management framework whereby the primary emphasis is on preparedness, monitoring, and responsiveness – and in which the latter is tested frequently through scheduled simulations, not when the crisis actually strikes. Indeed, research has shown that those firms which have anticipated, strategised and frequently practiced various potential crisis situations are much more capable at responding swiftly and appropriately when the proverbial wolf actually appears at the door. That’s because simulations help pinpoint possible deficiencies (e.g., who can and who cannot handle the pressure) and isolate where (and how) response plans need to be strengthened.

Just as important, though, a sound crisis management system also clearly specifies the various roles, responsibilities and accountabilities – before, during and after the crisis – of all key stakeholders such as the board, management (e.g., CEO, CFO, Lead Crisis Manager, General Counsel and a Communications Expert) and others, with media training considered essential for all.

Finally, while it’s important to identify an organisation’s top 5-10 major risks (or “crisis triggers”) as part of the crisis planning process, it’s virtually impossible to strategise in detail for every other type of danger. And even companies with advanced and cutting edge crisis management plans can sometimes fail to foresee novel or unimaginable dangers and hazards, typically referred to as Black Swans. It’s therefore important not to try and create separate plans for every “other” potential crisis but rather plan for varying degrees of ‘business interruption.’

So what then should the board itself do in preparation for the next possible crisis? Interestingly, a good board should start by evaluating its own performance as displayed during the last crisis through some sort of self-evaluation. It should also reflect on who the “point person(s)” on the board are during such an event. More specifically, is it the board chair who should be seen to be in charge “on-camera” or should it be the chair of a committee that the crisis most directly affects, such as compensation, safety, environment, governance, audit, etc.

Regardless of the situation, the goal of every board in assessing their company’s crisis management system is essentially the same: to gain reasonable assurance that their organisation can act authoritatively, assuredly, appropriately and swiftly when it is faced with any crisis. And it should put questions to management on a regular basis around each of these key conditions – especially as new information emerges.

Accordingly, key questions that boards should ask in advance of a possible crisis include:

  1. Does the organisation know exactly what it should be doing as part of its preparation for a crisis? In other words, does the organisation have a formal crisis management plan (including simulations) that deals with significant risks?
  2. How up-to-date is the crisis management plan?
  3. Is the plan sufficiently detailed and understood by those charged with its implementation?
  4. How quickly can the crisis response team be assembled and activated? How much time is required from the emergence of the crisis to first response?
  5. Are those charged with executing the crisis management plan appropriately trained to handle the situations anticipated by the plan? How comfortable and flexible are they operating under extreme pressure and uncertainty? How well do they communicate? Can they inspire confidence amid chaos?
  6. Is the crisis management plan appropriately resourced?

The “After” Part

Once a crisis does materialise, whether or not the crisis preparation work has been done beforehand, boards must exercise their second ‘crisis oversight responsibility’ to continuously monitor and evaluate the quality of their organisation’s responsiveness to the situation. This would again include assessing: the team put in charge to handle the crisis; the emergent crisis response plan; the degree to which everyone on the crisis response team knows and understands their roles and responsibilities in relation to the plan; the degree to which the team is able to competently carryout their assigned jobs; the need for a “specialist” media spokesperson; and the communication plan for all stakeholders.
While all of these items are important, the real key to skillfully and successfully managing a crisis, however, is the organisation’s ability to provide a rapid response to all relevant stakeholders (employees, customers, regulators, shareholders, etc.) with communications that are timely, frequent, accurate and above all empathetic. Boards therefore need to have confidence that their organisation, through its communications, is showing sufficient concern and support to affected stakeholders and doing whatever it can to help overcome their pain and distress. Failure to do so can quickly turn a crisis into a reputational nightmare for a firm and destroy the loyalty of those stakeholders who were once willing to sympathise with the organisation for the situation that it now finds itself in. And beware, social media only makes communication missteps even worse…much, much worse.
Nevertheless, there will come a time when it will be appropriate to declare that the crisis has ended and to resume normal business operations. However, selecting that time can be tricky. Calling it quits too soon, when there is still mop-up work needed to be done, will fuel the ire of those stakeholders who feel they are being neglected. Waiting too long, on the other hand, runs the risk of distracting the organisation from getting back to its business and the battle of beating the competition. Boards therefore need to have a continuing dialogue with their CEO on this matter as the crisis begins to wind down. The directors also need to have a soul searching conversation among themselves as to how well – and appropriately – the board provided oversight (and NOT management) to the crisis. They should especially reflect on what the board learned from it and whether the existing governance systems need to be modified in some fashion to help better in the identification, management, monitoring and mitigation of risks that could potentially turn into a crisis.
In conclusion, recent headline-grabbing corporate crises have emphasized the necessity of every organisation to have a sound crisis management system for ensuring its sustainability. Effective crisis planning, however, begins with tone-at-the-top and especially the need for directors to provide more diligent oversight, through probing questions, on the quality of this activity in their companies. Sadly, too many boards frequently leave their firms and themselves vulnerable because they have decided not to do this. So here’s the big, uncomfortable question for Caribbean directors: to what extent does your board have the assurance it needs regarding your organisation’s readiness and strategies for dealing with a crisis? If you think that there is room for improvement in the way your board carries out this important governance oversight function, you might want to consider sending them to one of the corporate governance training programmes currently available in the region – like the one currently being offered by The Caribbean Governance Training Institute. After all, it’s not education which is expensive, but rather ignorance.

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