The role of the board in crisis management
Admiral Sir James Burnell-Nugent shares his views
The board is responsible for assuring business viability. A crisis calls that into question. Andrew Griffin, a partner in our Crisis and Resilience practice, spoke with Admiral Sir James Burnell-Nugent, formerly Commander-in-Chief Fleet of the Royal Navy and now a non-executive director.
Q: Sir James, you have advised organisations extensively on leadership matters. What are some of the areas you draw out when you speak with boards?
A: The role of a board in peacetime is well understood – to oversee, assure and challenge the executive team. A board must scrutinise a wide dashboard of vital signs: market demand, innovation, regulation, leadership, sustainability, ethics and risk. Implicit is the ability of an organisation to withstand a crisis. But the role of the board in a crisis can be ambiguous.
The Companies Act 2006 identifies the board’s “duty to promote the success of the company”. This isn’t just the success of a recent product launch, or even shareholder return. Success in this context is longer term – it’s about being a viable business in the future – with the capacity to respond to opportunities and risks.
Crisis management should be an active concern for every board, whose ultimate responsibility is to state its confidence in the executive level.
In addition to this mandate, the personal reputation exposure of board members is growing. Legal action and pressure from shareholders to remove board members, if they are deemed to have neglected a core or fiduciary duty, is on the rise.
Admiral Sir James Burnell-Nugent
The critical factor is the board’s remit to look at difficult issues and risks and to challenge the executive on how they are being managed, with the goal to prevent a crisis.
Q: In our Crisis and Resilience practice, we suggest that crisis management can be considered as a lifecycle: crises can be predicted, prevented, prepared for, and if they occur, need a response and to be recovered from.
Clearly, non-executive board members will have a role in each of these stages.
What are your views of the role of the non-executive director in crisis prevention?
In my experience, the critical factor is the board’s remit to look at difficult issues and risks and to challenge the executive on how they are being managed, with the goal to prevent a crisis.
Almost all potential crises have happened before in some way or another, whether to the organisation itself or a peer. Identifying them and putting mitigation strategies in place, is a must, and should have the close attention of the board.
Boards can also ask the executive if they have spent time assessing crises suffered by their peers and if they have considered their potential exposure to the same issues.
The role of the board is crucial when the crisis has at its heart criticism of the performance of the executive.
Q: We see plenty of articles in the press about the impact of crises, such as cyber attacks. How can non-executive directors help companies be better prepared for crises?
Crisis management is about being ready for anything. Crisis management plans should set out the structure, objectives, teams and information flows. At board-level there must be clarity on who will lead, how decisions will be made, who will talk to media and investors, and who will address the concerns of suppliers, customers and regulators.
Plans should be rehearsed, tested and improved to ensure they will survive a crisis. Most organisations do test on a regular basis. In my opinion, however, too few boards are involved, or ask questions about these crisis exercises, feeling this is an executive function.
Q: After an organisation has started to suffer the effects of a crisis, how should non-executive directors be involved in the response?
That careers can be made and broken under the pressure of a crisis is played out regularly on our TVs and in our newsfeeds: getting it right is a shared goal. The role of the board is crucial when the crisis has at its heart criticism of the performance of the executive. In corporate scandal crises, for example, the board is particularly likely to be needed.
In other circumstances, the board should encourage the executive team to get out early and address an escalating issue, however it should not be active in ‘putting the fire out’. Of course there may be some specialist expertise that a particular board member can bring to bear, but as a general rule, the board can better meet its responsibility by keeping a strategic focus and not having a tactical role in the management of a crisis.
In supporting the executive, the board can keep focus on what is right, and in the longer term interest of the company, shareholders, other stakeholders and the wider public. This may be as important as determining whether there is still confidence in the executive team to discharge its duty.
Leading a crisis response can be a lonely place. The need for a sounding board and honest point of view is where the chair and board can add value also. This team can stand back, offer a considered point of view, spot stakeholders who are not being kept in the picture, or see an ethical dimension that might otherwise be missed. In an intensely busy period, make sure there is time for short, quality debriefs to happen.
The need for a sounding board and honest point of view is where the chair and board can add value also.
Q: And finally, is there a role for non-executives in the recovery phase?
Once a crisis has passed, the executive needs to return to a ‘new normal’. A crisis is often hard to look back on with depth and scrutiny because of the personal and organisational difficulties that are inextricably wound up in it.
In this aftermath, the board can play an important role. With the independence that it has, it is well placed to carry out a review of the crisis, how it was managed and how it can be prevented or managed better.
If you are interested in discussing any of the issues raised in this interview or finding out more about how we can help your organisation with its crisis management needs, please contact Andrew Griffin or Admiral Sir James Burnell-Nugent using the details below.