Crisis Management

Global Center for Corporate Governance Stepping in: The board’s role in crisis management Introduction A true crisis brings a punishing level of scrutiny In a crisis, when the stakes are and pressure that can be overwhelming if an organization is not prepared to manage it. A high and scrutiny is intense, good crisis response is, of course, about swiftly the board has a unique fixing what has gone wrong, but it is also about role. Stepping in may be being externally focused—communicating to stakeholders, shareholders, regulators— uncomfortable, but stepping and it is about making big decisions that aside is not an option. have a significant impact on the future of the organization. September 2019 Nearly 60% of respondents of more than WHAT DO WE MEAN 500 crisis management experts believe that BY ‘CRISIS’? organizations face more crises today than they A crisis is not a ‘bad did 10 years ago.i day in the office’. It Our own experience working with clients tells can make or break us that the frequency and velocity of crises is growing. Just think of the last decade that has organizations and brought us the banking crisis, the Arab spring, careers. It will always require an debilitating cyber-attacks on government, on executive-level response. political parties and on private companies, The British Standards Institute (BSI)’s European terrorist attacks, not to mention high profile Guidance on Crisis Management defines a crisis governance failures. as ‘an unprecedented or extraordinary event In this increasingly volatile environment, it is or situation that threatens an organization no longer possible to say ‘it can’t happen to and requires a strategic, adaptive, and timely us’ or ‘we’d manage.’ In post crisis reviews we response in order to preserve its viability increasingly see investors, regulators and other and integrity’.ii A crisis can emerge from an interested stakeholders scrutinizing the crisis incident or from a longer-running issue. It is planning that was in place prior to the event: characterized by an acuteness of scrutiny, how often were plans tested and exercised? pressure and organizational impact with a need How was senior leadership of the company for speed in decision-making, action involved with crisis management and its and communication. organization? How and when was the There are variations to this, of course, differing board involved? based on an individual organization’s purpose, Executives are responsible for the organization objectives and scale. But common to every and establishment of a crisis management crisis definition is a recognition that a crisis capability; boards are responsible for can impact an organization’s ability to meet its safeguarding the governance and viability of the objectives. organization. So crisis management should be a central preoccupation for the board of every WHAT DO WE MEAN BY organization, small or large, local or global. CRISIS MANAGEMENT? Why, then, do we see so few boards actively Crisis management participating in, overseeing and assuring crisis management in the way they do other risks and is a special, strategic contingency plans? discipline that enables an organization to leave ‘business as usual’ behind, and Note: We do not address any particular board governance model in this publication. Whatever to enter a different mode of governance the model; Anglo-American, Nordic, German or and operations, designed to get Japanese, etc., there is a common purpose, which decisions made, implemented and is the strategic oversight of an organization’s communicated quickly, with clear—but viability—its operational resilience, financial different—designated authorities. well-being and reputation. It is on this common purpose and responsibility that we focus here. Crisis management starts long before a crisis hits. It should be an integral part of the wider organization’s resilience measures and not simply something to deploy when all other options have failed. Stepping in: The board’s role in crisis management 2 WHY SHOULD THE with the power of technology and social media, BOARD ACT NOW? for example, can wreak havoc across an organization. The board should take a keen interest It is this complexity that makes it increasingly difficult to make sense of the core issues at play in the crisis capability of its and the trade-offs that need to be made. executive teams. Today’s crisis response demands more With its fiduciary duty and its responsibility frequent moves from business as usual to protect the interests of shareholders, this to a crisis management mode of working. sits squarely within the board’s mandate to The board needs to understand why, when oversee good governance and management and how the organization moves to a crisis of risk. It should be one part of the board’s response, and to be reassured that the normal assessment of the ongoing viability and response is effective. sustainability of its business. Increase in severity iii The BSI refers to ‘amplification’ factors that can Across many geographies and markets, we see tip an organization from business as usual to a trend towards greater regulatory intervention crisis: the tempo of events, the complexity of in business operations and larger sanctions the problems faced, the severity of the problem when things go wrong. Perhaps due to the and a prevailing atmosphere of uncertainty. greater complexity mentioned above, the desire These are each excellent guideposts for boards of public bodies to supervise and to sanction as they consider whether what they face is a has grown. crisis, or not. Let’s look at each of these in turn: The threat of large fines for violations, Increase in the tempo levied across national borders, and the Earlier thinking about crisis management used scrutiny that rests on individual leaders, to center around a period in the earliest stages makes organizations more vulnerable to of a crisis before shock turns to anger: the small crisis, and makes crisis management a window where the benefit of the doubt wins material and strategic concern for boards out. Crisis experts advocated being proactive of directors. and ‘getting out in front’ of external interest in Atmosphere of uncertainty a story. Today, this window has all but closed as the move to consume news on social media has We are constantly being told that the world we grown and minute-by-minute coverage of an live in is growing in uncertainty. Environmental unfolding situation is visible to all. degradation, disruptive technologies and economic and political nationalism—manifested Today’s crisis response needs to be sure- through trade wars, populist resurgences footed and well-practiced to win in this across Europe and increasingly divided political environment. The board needs to know debate—all contribute to an atmosphere of its role in advance, not learn about it upon uncertainty for businesses across the world. first contact. Organizations must prepare for critical Increase in complexity situations that they can anticipate, and Our inter-connected world brings increasing those that they can’t. Planning for ‘unknown complexity and dependency with global supply unkowns’ requires good process and chains vulnerable to disruption by international strong leadership rather than a ‘playbook’ events—natural and man-made. Technology approach with pre-agreed decisions. has altered the balance of risk between organization and individual. Lone individuals Stepping in: The board’s role in crisis management 3 BEFORE A CRISIS A clear escalation model is crucial in reserved for the most mature teams. setting out different levels of a crisis, Board members should individually The board must each of which with clear roles and attend these exercises either as a challenge crisis responsibilities. Importantly, crisis plans participant or an observer. We’ve seen planning activity. It must also should be only a handful of pages long. that this can provide the board with first have its own plans in place. They are not a step-by-step guide for hand visibility into executive leadership’s what to do next, but a set of rules within a preparedness. Attending these exercises Take a broad view of risk framework in which good decisions can be also allows board members to see if the made, implemented and communicated. executives are fit to execute their roles The list of potential crises that we can prescribed in the crisis plan. predict is limited only by our ability to We see a trend towards adopting a conceive of them and so the board should playbook approach to crisis management, Make sure a regular pattern of not focus narrowly on ‘domain risks’— but this has it limits. Having helped many testing is in place and the outcomes those risks that are particular to the organizations in the midst of a crisis, we are documented in a post-exercise business, that are severe but plausible. have learned that crises rarely unfold in report. The board should challenge The collective experience of a board the way the playbook predicts. Playbooks the findings of the report and should should be used to bring a broader view for executive-level teams often provide a focus on implementation of of the environment and to ask ‘what if false sense of security and a narrow view lessons learned. this happened… what if our mitigation of the world. By their nature, crises are fails?’. Interrogate the impact of the ‘what dynamic: good people, working to a sound ifs’ and seek assurance of financial and process, are essential to fill the gaps that operational resilience to manage them. the crisis inevitably leave open. Inquire if the organization has formally Seek reassurance that the plan is identified potential ‘novel’ or ‘black simple but robust and that executive swan’ type risks. This is an area that leadership is ready for anything most risk assessments miss, but can that might happen… not ready for prove valuable when constructing everything it can think of.

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