The role of the board in crisis scenarios

April 2017  |  FEATURE  |  BOARDROOM INTELLIGENCE

Financier Worldwide Magazine

In a corporate context, the moment when a dramatic event becomes a crisis is when it poses a significant threat to a company’s financial performance, reputation or its relations with key stakeholders. Research tells us that, on average, a company, especially a large organisation, can expect to face a crisis – foreseeable or otherwise – every four to five years on average, with the chief executive likely to have to manage at least one crisis during his or her tenure. So, given the likelihood, how prepared are companies and their boards to deal with a crisis scenario and all that comes with it, such as the need to meet fiduciary obligations.

Companies in crisis look to the top for guidance. Therefore, for those that operate in the upper echelons, knowing what to do when the chips are really down is an essential trait.

Anatomy of a crisis

A 2016 report by Osler, Hoskin & Harcourt LLP – ‘The Board’s Role in Crisis Management’ – observes that some large scale crises arise suddenly, such as terrorist events, natural disasters, computer hacks or public health outbreaks. Others are narrower in scope, for example, the unexpected illness or death of a company’s leader or damaging behavior by an employee or customer pertaining to business practices or ethics. Furthermore, a crisis may not be due to a single event, but rather a series of innocuous events or circumstances that build and compound over time.

“A crisis threatens the strategic objectives of an organisation over a sustained period of time, and at the most extreme, it can threaten the viability of the organisation,” says Tim Johnson, a partner at Regester Larkin by Deloitte. “A crisis can originate from internally led crises such as safety incidents or performance failures, to externally led crises such as security incidents or policy related issues. A board can be involved when any of these crises occur.”

Tone setter

According to policy and governance consultant Caroline Oliver, when a crisis hits, what companies need from the board is: (i) a consistent hold on a clearly stated vision for how things should be; (ii) a clear, consistent and regular demand for accountability from the chief executive for the restoration of that vision as soon as possible; and (iii) an incisive understanding of where the organisation is in the meantime.

“If the board allows itself to get directly involved in the ‘how to’s’ involved in fixing a crisis, it, and therefore the whole organisation, will have become subsumed by the crisis,” says Ms Oliver. “The board is the ‘setter of the tone at the top’ and, as such, when crises hit, it needs to keep its head, to hold its position, to stay in control. And what that means is that it must be clear what its own job is and not start trying to do other people’s jobs for them.”

Crisis management strategies

For reputation management adviser Deon Binneman, the key elements of a crisis management strategy are for it to be able to deal with the problem causing the crisis, assist the victims and those directly affected, communicate with and enlist the support of employees, inform those indirectly affected and affirmatively manage the media and other self-appointed outsiders. “Ultimately, management needs a competent, conclusive, straightforward, grand strategy that makes sense in a management context while addressing the various critical dimensions any crisis causes,” he says.

Part of a crisis response strategy should certainly involve a company rehearsing its response to ensure both the executive management team and the board fully understand their respective duties and obligations. So, while the executive focuses on making the strategic decisions that need to be made, the board must rehearse its interaction with the executive in a way that ensures effective leadership – an important distinction given the range of issues that are likely to emerge on a day-to-day basis.

“These requirements, although they may seem straightforward, become incredibly hard to execute effectively against the backdrop of a crisis,” attests Mr Johnson. “It is important that whatever crisis management mechanism is in place, it is aligned and integrated with broader risk and resilience management approaches, including incident management, business continuity and crisis communication. This is less often the case than might be expected, but will ensure clearer understanding of roles and responsibilities.”

Board know-how

In the business world, it is rare indeed to get a second chance to avert a crisis. Therefore, having the requisite systems, programmes and procedures in place to cope with a crisis is crucial – not only in terms of ensuring that ‘who does what’ is clearly understood, but also for allowing the board to set the tone and provide the know-how to plan and act accordingly before, during and after a crisis.

© Financier Worldwide

BY

Fraser Tennant