The current Covid-19 pandemic has blindsided several organisations’ boards, resulting in a lack of appropriate guidance from the board to the CEO. In addition, the pandemic has prompted companies to consider the quality and composition of their boards of directors, as some do not derive significant value from board members during this trying times.
Recent board vacancies indicate that companies are increasingly seeking board members with prior board experience and generic expertise in law, finance, accounting and human resources, to name but a few. However, only a few board members have exhibited expertise in crisis management.
Crisis management is concerned with anticipating, managing and recovering from an unforeseeable event such as the abrupt resignation of a long-serving CEO or board chair. It is a distinct strategic discipline that enables an organisation to abandon traditional business practices and inculcate a new mode of governance and operations designed to expedite decision-making, execution and communication while maintaining clear but distinct delegated authority.
Contrary to popular belief, crisis management is not synonymous with risk management. Risk management entails identifying, assessing and mitigating any activity or event that could harm the business, such as acting inconsistently with the organisation’s strategic objectives, or mismanaging a business unit.
An operational crisis, such as a prolonged power outage, is typically the responsibility of management, whereas a corporate crisis is the board of directors’ responsibility. The latter refers to an event or situation that jeopardises the company’s reputation, such as litigation, regulatory sanctions or other threats to a company’s survival.
As seen with the Roads Contractor Company, SME Bank and Air Namibia, Namibia’s recent corporate governance failures have unequivocally demonstrated that a board’s resilience in managing governance challenges is not tested in good times, but during times of crisis.
A company’s board of directors play a crucial role in guiding their organisations through crisis management. Therefore, how the board responds to and manages a crisis determines whether the company can continue operating or file for liquidation.
KEY CRISIS CATEGORIES FOR MODERN COMPANIES
Financial crime and misdeeds: fraud, money laundering and other illicit behaviour;
Financial distress: financial failures that threaten business continuity;
Technological: failures of complex systems due to mismanagement, accidents or sabotage;
Other catastrophes: natural or man-made events that significantly disrupt a company’s operations;
Confrontations: legal, commercial, geopolitical or military in nature.
In light of this, directors should be aware that there is increased media focus on board governance in the era of crisis. The once invisible non-executive directors are increasingly publicly named and shamed for «dozing off on duty,” “incompetence,” and “serving as puppets of the all-powerful CEO.” As a result, the board’s traditional directing role must be modified to include some operational involvement in preparing for a crisis management role.
Today, organisations worldwide are increasingly seeking independent non-executive directors who have experience in managing crises, change management, turnaround scenarios or unprecedented situations, and can challenge conventional wisdom.
Ideally, the board of directors should set aside time each year to better understand and prepare for significant business threats, as the oversight of crisis preparedness and efficient communication are critical responsibilities of any board. This medium could be a critical component of their fiduciary responsibility to represent the shareholders who, unfortunately, bear the brunt of a poorly managed disruption.
Likewise, the board should consider all potential crisis areas, and develop a crisis management response plan that includes critical roles for directors. A crisis management plan (CMP) details how an organisation will respond to a critical situation that threatens its profitability, reputation or ability to operate.
Seasoned directors who have navigated a previous board through a crisis can also be a valuable source of guidance. They can join the business continuity team, use the CMP to avoid or mitigate damage, and provide guidance on staffing, resources and communications with key stakeholders and the media.
To this end, organisations that regularly assess and train on their crisis response plan will become crisis-resilient in the future since effective crisis management goes beyond being reactive and simply protecting existing business value. Instead, it fosters resilience and future business performance, ultimately resulting in the organisation emerging stronger, fitter and better.
Renowned corporate governance experts recommend that astute business leaders invest in crisis management capabilities. These capabilities can assist organisations in avoiding costly and occasionally irreversible damage to their finances, employee morale, brand and reputation.
At the end of the crisis period, board members should investigate the causes, and take preventative measures to avoid a recurrence. Sometimes the board receives a report detailing what occurred, but not why it occurred. As a result, the board may direct the management team to perform a root cause analysis, rather than focusing exclusively on the immediate cause of the problem.
In conclusion, organisations must consider the rise of several crises, and be prepared to respond quickly to a variety of field-tested scenarios. Therefore, it is imperative that organisations approach crisis management planning with a “when, not if” mindset, and develop a plan as if an incident will occur.
There is a well-known aphorism that states “Pressure creates diamonds.” It can result in a puddle of mush. The difference is in how well we adapt to crisis leadership versus leadership in good times.