A CRISIS AROUND EVERY CORNER: TURBULENT TIMES FOR BOARDS
We live in a world of global instability, insecurity and complex inter-dependency, where at any given time a potential crisis is only just around the corner. Effective risk management has never been so important for boards and senior management teams: they are expected to know about problems which may be brewing within their organisations, external events that could potentially do damage, and then act upon that knowledge quickly. In addition, the ever-increasing spotlight on ESG (managing and reporting environment, social and governance issues within business operations), which requires organisations to do good and behave responsibly, means that shareholders, the media, the public and other stakeholders will scrutinise and hold boards responsible for corporate acts and omissions as never before.
The buck stops with the board. Boards are responsible for safeguarding their organisations’ governance and viability: they are responsible for an organisation’s strategy and articulation of purpose and ultimately responsible for its reputation too. Reputation and ESG are inextricably intertwined. ESG has elevated the importance of reputation management, bringing it firmly to the heart of business strategy. Increasingly, organisations will need to view their ESG decisions through the lens of reputation, aligning it to their stakeholders’ needs and demands. It’s a complex brief.
Crisis management should start long before a crisis hits: it should be an integral part of an organisation’s wider resilience planning. Whereas in days gone by, boards may have left crisis planning and management to their executive teams, today – because of the volatile times we live in, ESG and the enhanced expectations of stakeholders - they must take a more proactive role. Good governance requires boards to manage risk and act positively to avoid crisis rather than react to it later. Crisis management is a material and strategic concern for all directors.
Crisis response today should be well-rehearsed and sure-footed. Boards must be able to know the role they will play in it well in advance of any crisis that arises; they must be able to understand how, why and when their organisations move into crisis mode and be reassured that the response is effective.
It is for this reason that organisations should consider or reconsider how deeply boards should be involved in risk management and crisis planning. Boards tend to operate on the principle of ‘noses in, fingers out’: in other words, they operate in a supervisory and advisory capacity as a ‘critical friend’, leaving the executive team to get on with the management of day-to-day activities, but in the changing environment it might make more sense for one person on the board, at least, to develop a much closer working relationship with the executive team, especially when it comes to risk management and crisis planning. Perhaps this is why some organisations have recently started to build ‘hybrid’ roles in which specific non-executive board directors are also given some executive functions, thereby promoting clear lines of sight and communication between the board and the management team, baking in an extra dimension to risk management in practice. But regardless of whether the hybrid approach is adopted or not, in this new age it makes sense for boards and management to agree what the right level of oversight and interaction between them is.
Organisations face all kinds of different risks and it is imperative that the board takes the time to monitor, identify, analyse and assess them adequately. The real question here is how deeply the board and/or its risk committee should dive into this task and whether or not, in this day and age, it is enough to rely on a simple review of the risk register or whether a more interrogative approach is called for. According to a recent report by US think tank The Conference Board, most CEOs across the globe are not prepared for crisis, notwithstanding the volatile times we live in. Crises can come out of nowhere – the so-called ‘black swan’ events – or they can be the result of layers of mistakes, failures and omissions. In a world that is increasingly disruptive, inter-connected and dominated by 24 hour news cycles, unceasing social media and regular interaction with stakeholders, a risk can turn into a crisis more quickly than ever before. Effective risk management, strong leadership and thoughtful, dedicated pre-planning for crisis will help to avoid or mitigate its impact.
A crisis can have a significant impact on an organisation's reputation, financial performance and ability to operate effectively. As a board member, it’s your responsibility to ensure that the organisation you oversee is prepared for and able to effectively respond to any crisis that may arise to minimise damage and maintain stability. So what can boards do to prepare for, and possibly prevent, respond to, and recover from crisis? Here is an easy checklist to get you started:
1. Monitor, identify, assess and analyse any potential crises: take a broad approach to risk. Boards should work with management to identify potential risks and crises that could affect the organisation. These could include a sudden change in market conditions, natural disasters, cyber-attacks, allegations of bullying, financial or sexual scandals, and other events that could disrupt the organisation's operations or damage its reputation. Don’t be afraid to ask penetrating questions, including ‘what if’ and ‘what would you do when’? Consider the impact of worst-case scenarios.
2. Don’t forget people and culture. Crisis can shatter the very roots of an organisation, so well before any crisis hits it is important to ensure that relationships within the board, and between the board and executive/senior management team, are strong and function effectively. The relationship between Chair and Chief Executive is absolutely key and transparency is essential. Don’t forget that an organisation’s culture can pose a risk in itself. Whereas employees can be an organisation’s best ambassadors they can also be its detractors. Crisis can easily come from within.
3. Ensure that a crisis management team is established. This team will develop a crisis management plan and manage any crisis that may occur. It should include representatives from relevant departments across the organisation. Consider whether anyone on the board should have a place in the team, and if so, who. Either way, it is important to ensure that the board fully scrutinises the plan that the team proposes before it is put into place.
4. Ensure that all relevant personnel are trained and prepared to respond to a crisis. Naturally the crisis management team will have to be trained on the crisis management plan and procedures, but it is worth considering who else from both the board and the senior management team should be included. Appropriate training might include tabletop exercises, scenario planning, role-playing, war gaming and/or crisis simulations (especially useful for cyber-incidents since they involve real time stress tests for multiple teams). Apply this to specific scenarios so that you have an opportunity to clearly think through what you would do in any given crisis situation well in advance.
5. Ensure there is a clear communication plan with agreed protocols in place. In the event of a crisis, it is vital to communicate effectively with stakeholders, including shareholders, employees, customers, investors, regulators and the media. The crisis management team must develop a clear and concise communication plan that outlines what information will be shared during a crisis, how, with whom, when and how often.
6. Get specialist crisis media training. The crisis communication plan will set out who the organisation’s media spokesperson or people will be in the case of a crisis. Each person will need to be trained in advance. Consider and agree how many board members should participate in the training and under what circumstances a board member should act as spokesperson and if so, who that would be.
7. Ensure the crisis management plan is tested regularly. Regular testing and refinement of the crisis management plan can help identify any weaknesses or gaps and ensure that the plan remains relevant and effective. People need to have absorbed the plan at a visceral level before they are called upon to use it.
8. Monitor the crisis closely. The crisis management team should closely monitor the situation and make adjustments to the crisis management plan as needed to ensure that the organisation is responding effectively. Agree in advance how often and in what manner reports and updates will be given to the board.
9. Conduct a post-crisis review. After the crisis is over, the board should conduct a post-crisis review to evaluate the organisation’s response and identify areas for improvement. This could include evaluating the effectiveness of the crisis management plan, identifying any gaps in training or communication protocols, and making recommendations for future improvements. The board should also satisfy itself that the recommendations have been implemented and that the lessons have been learnt. It should be ready to support any change that is needed and be a part of the change if necessary.
In this way, boards can help to ensure that their organisations are prepared to manage a crisis effectively and minimise its impact.
As a last word, it is worth noting that too few boards count people who have corporate affairs experience amongst their numbers; indeed many boards have no such representation at all and others rely on bringing in outside advisers only when a problem has already arisen. This is a pity because corporate affairs professionals play a critical role in managing an organisation’s brand, profile and reputation, its communications and its relationships with stakeholders. They are also skilled at identifying new opportunities, managing risk and dealing with crisis. https://www.marlandsykes.com/blog/why-no-board-can-do-without-a-corporatepublic-affairs-professional. Organisations are run by humans, for humans, who make mistakes, and the risk of reputational risk and crisis is ever present. Corporate affairs professionals are trained to spot and/or deal with these issues at an early stage so, in order to optimise good governance (the G in ESG), it is vital to include non-executive directors with corporate affairs experience on your board. They can be essential allies to have around you in critical times.