Crisis management

Crisis management in the boardroom

It's different for boards

The view at the top is exhilarating. So is the weather. When crisis looms, board members are exposed in ways that may be unfamiliar – and drawn into an active role that’s distinct from what management is going through.

Four out of five business leaders expect their companies will experience a crisis in the next year, but barely half have a plan to deal with it.¹ Even when there is an organization-wide crisis plan, however, that doesn’t necessarily address the board’s needs. Yes, the board supports the main plan with oversight, moral authority, and strategic vision. But the board needs a plan all its own for those moments that place it in the eye of the storm.

Threats to a company’s value, reputation, or existence go beyond the operational level. Think about who outranks the board: shareholders. Regulators. Law enforcement authorities. If someone like that is involved, chances are the situation calls for a response at the highest level.

Then there are crises that directly involve the board or its members, such as litigation, leadership controversies, or even removing and replacing top executives. Making the board ready and resilient in the face of these threats starts with the composition of the board itself.

¹“Prepared for a Crisis?” in Tone at the Top, Issue 61, April 2013. The Institute of Internal Auditors.

A different role in business means a different role in crisis
From the public’s perspective, the board is seldom visible. Crisis, especially a leadership crisis, can thrust board members in front of media microphones. By that time, however, a lot should have happened behind the scenes.

A company and its board need to decide where operational issues end and “corporate crisis” begins. Of course, sometimes the difference between operational and existential crises isn’t so clear. One can become the other quite quickly. The first category is usually the domain of C-suite executives and the people who report to them – things like supply chain kinks or weather disruptions that complicate daily business. In contrast, a corporate crisis is one that involves reputation, share price, major litigation, regulatory sanction, or a company’s existence. These may arise from a number of sources: cyber threats, financial misdeeds, financial disruption, technological or industrial breakdowns, confrontations, or catastrophes that are outside anyone’s control. And it may be up to the board to plan for the continuity of the enterprise in the case of an unforeseen disaster.

In preparing for, meeting, and rebounding from corporate crisis, the board isn’t just in oversight mode anymore. Its members have a direct responsibility to anticipate threats and make quick, far-reaching decisions. That may include pre-populating a crisis subcommittee with people who excel in specific roles like legal, accounting, audit, public relations, or specific industry issues. It may include arranging for outside counsel or support, or deciding whom to include in sensitive external and internal communications, and whether to alert employees. The board’s role at a time like this may even have to include replacing a CEO on short notice – or stepping in to act in that capacity for a time.

This is no place for on-the-job training
One valuable skill a board member may bring to a crisis is having been through one before. Whether an earlier trial ended well or poorly, whether the person in question earned the credit or bore the blame, firsthand experience ingrains more than knowledge in a person – it also instills confidence and poise under pressure. It’s true that crisis experience may not be at the top of the checklist when boards recruit new members. A board member’s crisis service on one board may seem to be a distraction from service on another. And the prospect of dealing with a bad situation is probably not the reason people seek or accept board appointments. But in the final balance, experience is still the best training and a valuable quality to build into a board’s mindset. It is hard to weather a storm with a group of people who came together with smooth sailing in mind.

Nor is crisis the right time to discover disharmony. When the job suddenly expands far beyond quarterly reports and shareholder meetings, any cracks are going to become very visible and very costly. Only a dedicated crisis plan can set the board on a path toward crisis resilience, and only formal simulations can determine how well the plan and the people will really function when they have to.

Know the lay of the land
The relationship between organizational crisis planning and board crisis planning takes its cues from the relationship between the organization and the board. Historically, there have been important regional differences in this alignment, though they are declining. In the United States, the CEO is typically invested with significant strategic latitude – and may also be the board chair. In Europe and Asia, the C-suite may take strategic cues from a more prescriptive board. Each organization should assess these lines of authority and make sure the plan for action in a crisis corresponds to them. Some CEOs will look to the board during major threat events. Others may risk feeling micromanaged. To avoid misunderstandings when no one has time for them, it’s important to have regular, honest discussions about who expects what from whom.

No matter what the board’s intended role in crisis management, it needs timely, accurate information. If some board members are accustomed to receiving the information management provides them, this may require the development of new antennae, and a renewed willingness to ask tough questions. To maintain a 360-degree view of the threats it faces, a board may look to third-party or public data. It may also consider whether it should secure access to the real-time operational data that’s usually the province of people lower down on the org chart. Deciding what information to watch is a matter of strategy; making it happen can become a question of technology and processes.

How to start
Know what you’re getting into. Membership on a board of directors usually starts with an appeal to your experience, connections, or even vanity. The setting is august, the time commitment limited. But when crisis strikes, board members become full-time leaders – and stay that way until the threat subsides. People who join a board may not expect daily conference calls to be part of the bargain, but they may be the most important engagements a person has during his or her tenure.

Embrace the unglamorous part. Facing down reporters, regulators, and shareholders in a moment of high drama is only part of the crisis task. Before any of that happens, crisis management includes meetings, reading, briefings, and day-long simulation exercises. Before you can master the three-ring circus, you need to embrace the three-ring binder. This is work. But it pays off.

Identity is planning. Who on your board is expert in risk? Who is the steady PR hand? Who knows how to monitor social media and safeguard reputational risk? And who has been through something like this before? If you build crisis capabilities into the very makeup of a board, define the role of the board, and agree upon the operating protocols in a crisis, it will be easier to staff the necessary subcommittees, determine the need for outside advisers, and plan roles and responsibilities. Whether the solution is a phone tree or a written protocol, any solution is better than finding that no one knows who is in charge.

The Focus on series is part of Deloitte's commitment to provide insights that help board members and senior executives navigate the crisis management lifecycle, including readiness, response, and recovery.

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