In recent months, we have all heard about the Apple Company and the public backlash to the disclosure of its company’s tax avoidance plan or the Weinstein Company and accusations of sexual harassment against its CEO which resulted in #MeToo going viral. These crises have resulted in huge negative reputation impacts and business disruptions.
Were the boards of these companies ready for these crises? Did they know what their role was as board members to successfully anticipate and manage through a crisis?
The Board of Directors has a critical role to play during crises to maintain company reputation, shareholder value and in some instances, protect people and the environment as well a company’s assets.
The board needs to act as the moral compass for the organization and set the standards and expectations for the executive team and the company. Leadership in a crisis means demonstrating ownership and responsibility and protecting the organization’s credibility. In some instances, they also need to be prepared for the unpleasant task of removing and replacing the CEO or other senior executives during a crisis.
But in order to fulfill their role, they must first understand how to effectively prepare for and manage a crisis.
In a 2015 study called “A Crisis of Confidence”, Forbes Insights, on behalf of Deloitte Touche Tohmatsu Limited, conducted a survey of 300 board members from companies representing every major industry. They discovered a “vulnerability gap” between awareness of threats and the preparedness to handle them. While more than three-quarters of board members believed their companies could effectively manage a crisis, only 49% said their companies had playbooks for crisis scenarios and even fewer, 32%, said their companies actually engaged in crisis simulations or training.
In the same study, fewer than half (49%) of the board members said they have engaged with management to understand what has been done to support crisis preparedness. Only half said board members and management had specific discussions about crisis prevention.
A surprising result given that a CEO Pulse Survey by PriceWaterhouseCoopers LLP conducted in March 2016, found that 67% of CEOs said their companies had experienced a crisis in the past three years and 73% of the CEOs believed they would face a crisis in the next three years.
A company board can start its crisis preparedness process by assigning crisis responsibility at the board level. Tasking a specific committee, whether it be a risk committee, executive or corporate governance committee, with the job of ensuring plans are in place to address the company’s risk profile and crisis response is a first step.
Highlighting the importance the board places on crisis preparedness will also send a meaningful message through the rest of the organization about the necessity of anticipating and being ready to respond to potential crises.
The board should also be reviewing these crisis management plans on a regular basis and mandating regular crisis training with realistic crisis scenarios and simulations for the organization.
A vigilant board should be asking the following questions:
- Do we have the processes in place to anticipate potential risks and crises for our company? Studies have shown that the majority of company crises are smoldering issues that could have been prevented from turning into a full crisis.
- Do we have the right internal escalation plan in place to ensure that we, the board, is made aware of potential crises before they become full blown ones?
- Does our senior management have the necessary skills and training to lead a crisis management team?
- Is our CEO the right person to chair a crisis team or be the company spokesperson during a crisis? Your CEO may be a great business leader who delivers the numbers but he may not be the right person to lead through a high-pressure crisis or even be the company spokesperson during that time. It is important to pick crisis team members on the basis of suitability, experience and ability and not functionality alone.
- Does the company have a robust crisis process and procedures in place, regular training with realistic crisis scenarios or simulations?
- Will the board be proactive during a crisis to seek feedback within and outside the company about how well it is responding to the crisis? Feedback can be tough but consequences of not asking for it, can be much tougher. Too often companies try to manage a crisis in a protective bubble and don’t try to understand nor address the perspective of its stakeholders. It is in this gap between the company’s internal perception and that of its stakeholders that a reputation train wreck can occur.
- Have we, the board, considered options for an Acting or Interim CEO/CFO? If the crisis involves a senior member of management, it may be necessary to suspend or terminate that executive. Boards should have a short list of potential back up candidates for these critical roles.
- Are we willing to learn from our experience? After the crisis, the board should request an AAR (After Action Report). What were the lessons learned? How can we be sure this won’t happen again? What changes or additions do we need to make to our crisis preparedness or training? How and who will implement these changes?
In today’s high risk environment, crisis awareness and preparation is a must topic on the agenda of every Board of Directors. Boards cannot rely on delegating such a critical component of business management and leadership to executive management. Every Board member must grasp the basics of crisis leadership and set clear expectations of how it wants its company to not only respond to crises but to also anticipate potential crises. Not all crises are inevitable and with the appropriate planning and processes in place, the Board can have a significant influence in ensuring that a crisis does not turn into a reputation meltdown for the company.
Janice Armstrong is an Associate of CS&A International based in Singapore with over 25 years experience in government affairs, and issues and crisis management for major companies in the food, pharma and agro sectors.