Getting Through Times of Crisis

 

The COVID-19 pandemic is finally receding into the rearview mirror, and so is the crisis mindset that affected so many organizations around the world. Board directors everywhere are eager to get back to a more “normal” rhythm.

While this kind of global health crisis is rare, it’s a good bet that sooner or later every organization – private, public, non-profit, or government – will face some kind of crisis. Getting through it will take skill, commitment, and judgment on the part of both the board and the management team.

A board that does this well can help the organization they serve successfully weather the storm.

Let’s take a look at what board directors can do to help their organizations prepare for, withstand, and survive a crisis.

" ... it takes a crisis to know if you actually have a great board." - Margaret Mulligan, Corporate Director

Being prepared.

Good crisis management starts long before a crisis hits. Even with only calm waters on the horizon, the board needs to ensure the organization is prepared for a storm – the executive team is capable, risks have been identified, and response plans have been developed, tested, and practiced.

Having a business continuity and resiliency plan ensures the organization has the right structure, processes, and people in place. Just knowing that a plan exists isn’t enough - directors need to test for risk and find out if there are any cracks in the plan. The board should satisfy itself on questions such as:

• Who is the emergency replacement for the CEO?
• What does the incident response team leadership look like?
• Have we dusted off our business continuity processes lately?

"Don't wait until you're in a crisis to come up with a crisis plan." - Phil McGraw (better known as Dr. Phil)

Recognizing a crisis.

Crises are unprecedented or extraordinary events or situations that threaten an organization and require a strategic, adaptive, and timely response in order to preserve its viability and integrity. They are characterized by acute scrutiny, pressure, and organizational impact, and they need speed in decision-making, action, and communication. They have the potential to unleash a great deal of damage in a very short time.

Some crises can be foreseen, others not. They may happen suddenly, arising from either internal or external sources. Large scale examples are natural disasters, cybersecurity failures, and public health outbreaks. Smaller scale examples include the illness or death of a leader or damaging social media.

Sometimes, a crisis takes longer to make itself known. An expected event can turn out to have unforeseen consequences that lead to a crisis. Or a series of innocuous events can compound over time, eventually reaching a boiling point. Or unrelated risks that are considered manageable if they occur separately can happen all at once, causing a crisis.

Finally, there are factors that can tip an organization from business-as-usual to crisis, such as the unprecedented speed of events, an unfamiliar level of complexity or severity, or an uncertain environment. In these circumstances, a budding risk can develop into a crisis. The board needs to watch for early warning signs and be on the lookout for management complacency or rose-colored glasses.

It’s not always obvious for either the board or management to realize that a situation has morphed into a crisis. In his book “Crisis Management: Planning for the Inevitable,” author Steven Fink suggests posing five questions to determine if a situation has the makings of a crisis:

1. Is there a good chance that, if left unattended, it will escalate?
2. Might it draw unwanted attention from the media or regulators?
3. Might it interfere with business operations?
4. Could it cause stakeholders to lose confidence?
5. How might it affect the bottom line?

Focusing on what’s important.

In times of crisis, there are five key areas that merit the board’s focus:

1. Finances – ensuring the viability and sustainability of the organization.
2. Business operations– ensuring the organization is able to keep running.
3. Employees – monitoring the health, safety, and well-being of employees, including the management team.
4. Communications – making sure key stakeholders are kept informed and positive relationships are supported.
5. Strategy – constantly evaluating the impact of the crisis on the organization’s long-term plans.

Providing guidance and support.

It’s important to be clear on roles, expectations, and boundaries from the beginning, so management understands when they can proceed and when they need to consult the board. Where exactly those boundaries lie will differ according to the industry, the organization, the culture, and the expertise of the people involved. What really matters is being on the same page.

A big part of the board’s role is to provide advice and guidance as the crisis unfolds. While management might find themselves in uncharted territory, some board directors might very well have lived through a similar crisis, enabling them to share more direct experience and a different perspective.

A continuous flow of information from management to the board will enable the board to provide management with direction within short time frames. The board can support management by providing guiderails, being careful to avoid taking over or adding extra burdens through unnecessary demands.

While management’s focus will be in the trenches, the board will want to keep the organization’s strategy and key initiatives in mind, looking at the road ahead to anticipate emerging risks and opportunities.

“Look to the horizon. …. We, of anyone in the room, have an obligation to steward the company for the long term.” - Irene Chang Britt, Corporate Director

At the same time, it’s important to recognize that there may need to be trade-offs between maintaining that long-term focus and delivering short-term performance. If that happens, the board and management will have to agree on how the strategy can be tweaked and which initiatives can be deferred.

Directors should look for signs that management’s capacity to cope is close to the breaking point. If that happens, board members may find they need to help out with the additional work that comes with a crisis.

There may be times when the board needs to lean in even further. That can happen when it’s determined that management is unable to provide the necessary leadership in situations such as corporate misconduct or board governance issues. Very rarely, and only as a last resort, the board may actually have to take the reins from management and step into an executive role.

Maintaining relationships.

A crisis can dramatically alter the stakeholder landscape. The board needs to ensure that the organization anticipates and responds to these changes with communication that is proactive, open, and frequent.

This is another area where the board should provide guidance to management and support for the communication strategy but resist the temptation to interfere. If the board’s role is criticized in the media, that may be a reason for the board chair to address the situation, but as a rule the whole board should have the opportunity to discuss it first.

“News coverage will be unfair. You will see it’s unfair. …. But it will be out there and it will be constant.” – Participant in Osler, Hoskin & Harcourt roundtable

In a crisis, tone at the top is more important than ever. Directors’ and management’s words and actions need to align with the organization’s core values. Board members can demonstrate their commitment and support by being visible, without undermining management or getting in the way.

While the board can expect to receive frequent updates from management, this can be a time when it’s helpful for directors to enhance their understanding by seeking out a variety of perspectives, talking with people, and observing what’s happening inside and outside the organization.

Making quick decisions.

“There cannot be a crisis next week. My schedule is already full.” – Henry Kissinger

A crisis requires making decisions quickly in an environment of uncertainty and risk. The normal frequency of board meetings won’t suffice, especially during the early days. We learned this during the pandemic.

Adding more frequent board meetings can place an extra burden on the administration when they can least afford it, so formal board meetings might be replaced by informal briefings with the board chair that serve as a conduit between management and the full board. On any given issue, the board chair then decides if they should call the board together for a formal decision.

This often means that the board chair’s workload increases more than that of other directors. If the board chair can’t take on the additional work, or if more voices are desired, the board may decide to create an ad hoc committee to address the need for rapid turnaround.

Obtaining independent advice.

There are times when companies face the real likelihood of failure. For directors, a company in serious financial distress is a dangerous time when the risk of personal liability is heightened. Independent advice from professionals can be critical.

Directors are sometimes reluctant to engage external experts because of concerns about privacy, confidentiality, and market sensitivity. But waiting too long is not advisable.

An independent analysis can provide an objective assessment of the company’s financial position and its risks, including the risk of insolvency. Recognizing the warning signs early on can help the board avoid serious trouble.

Recovering from a crisis.

Crises invariably last longer than anticipated and ripple out to have unforeseen consequences. The board has an important role in navigating through recovery by helping management to look up and over the horizon, and by monitoring the organization’s health to ensure progress is sustainable.

Once the crisis has passed, the board should review with management any learnings from the experience. This is a good time for the board to conduct a calm review of the crisis - its causes, how it was handled, and how a future crisis can be prevented or managed better.

Questions for the Savvy Director.

Here are a few questions adapted from the Deloitte article, Stepping In: The Board’s Role in Crisis Management.

• Do we have a business continuity and resiliency plan?
• Do we conduct at least one crisis exercise each year?
• Should a particular board committee take responsibility for oversight in a crisis?
• Do we have a plan to keep stakeholders informed during a crisis?
• Do we really understand the value of our reputation and how to safeguard it?
• Are the board and senior management ready now for a sudden crisis?

Your takeaways:

• Ensure the organization has a business continuity and resiliency plan that is regularly tested.
• Focus on what’s important – finances, operations, employees, communications, and strategy.
• Avoid unnecessary demands on management.
• Provide guidance and support without taking over.
• Make sure the board can make quick, agile decisions.
• Don’t hesitate to obtain independent advice.
• Learn from the experience.

Resources:

• The Board’s Role During Crisis and Beyond. Celia Huber, Nora Aufreiter, Peter Bisson, and. Margaret Mulligan. February 2021. McKinsey & Company.
• The Board’s Role in a Crisis. Erica Seville and Richard Ball. New Zealand Institute of Directors. June 2020.
• The Role of the Board of Directors During Crisis. Alisa Cohn. June 2020. Forbes.
• Stepping In: The Board’s Role in Crisis Management. Don Konigsburg, Andrew Griffin, Michael Rossen, and Claire Snowdon. © 2019 Deloitte.
• The Board’s Role in Crisis Management. Andrew MacDougall, Lawrence Ritchie, Rob Yalden, and Noralee Bradley. © 2016 Osler, Hoskin & Harcourt LLP.
• 20 Questions Directors Should Ask About Crisis Management. Doug Enns, FCA, C.Dir. and Hugh Lindsay, FCA, CIP. © 2008 CPA Canada.

Thank you.

Scott

Scott Baldwin is a certified corporate director (ICD.D) and co-founder of DirectorPrep.com – an online hub with hundreds of guideline questions and resources to help directors prepare for their board role.

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