Whether a private or public company, a not-for-profit or a municipality, many organizations will experience a crisis sooner or later. The effectiveness of their response determines whether a business gets out of a crisis stronger or suffers irreparable damage. Non-executive directors can rarely prevent a traumatic event. They can, however, mitigate the worst-case scenario by working as a team, demonstrating strong leadership, and ensuring they have members with solid crisis management experience. Relevant crisis management skills can’t be read about in a book. Corporate board members develop them in unforeseen but unique situations that test business leaders’ reputation, along with financial health, culture, and the overall resilience of their organizations. Unwelcome media attention increased stakeholder and community interest, regulatory and governmental actions and/or sudden CEO succession will often come hand-in-hand with these crises. Examples of crises:
- Sony Entertainment hack, 2014
- Chipotle E. coli outbreak, 2015
- Volkswagen Diesel scandal, 2015
- #DeleteUber, 2017
- Marriott Data Breach, 2018
- Dun & Bradstreet being taken private, 2018-2019
- Huawei geopolitical turmoil, 2019-2020
- AstraZeneca botched vaccine announcement, 2020
- Purdue Pharma turbocharge sales, 2020
- Wirecard fraud discovery, 2019-2020
- Facebook whistleblower revelation, 2021
In my experience in non-executive directorships in US, UK and German governance systems, I have encountered five common areas of necessary decisive actions for board teams:
- Recognition of a crisis
- Unity of purpose
- Interdisciplinary problem-solving and action
- Attention to the needs of the workforce
- Personal accountability of executives
With this in mind, the following steps are universal recommendations for non-executive teams facing crises:
1. Recognize the company is facing a crisis. Predefined response plans might not exist, but healthy behaviors and candid mindsets can prevent them from overreacting to yesterday’s developments and support an organization in its reorientation. Companies will sometimes try to gain more time as they don’t understand all the facts or underestimate the lack of transparency with external stakeholders. There is nothing more damaging than engaging in watermelon reporting — presenting something as green on the outside while underplaying internal struggles (red on the inside). It damages credibility and culture.
2. Unite non-executive and executive teams behind a common purpose and communication. The essential duty of chairpersons/lead directors and (interim) CEOs is to unify non-executive and top leadership teams behind a common goal. Marginalizing critical voices and excluding certain players from problem-solving discussions will ultimately lead to longer response times, especially while trust between the executives and the board of directors is in question. Sharing information with every single board member opens the door to additional insights. Poor leadership from a chair might manifest in over-confidence, dependence from external advisors, and even the leak of critical information to the media and/or suppliers.
3. Navigate the situation with an interdisciplinary leadership team. Put an interdisciplinary leadership team in place to navigate the situation. In most cases, crises usually present a degree of complexity that makes it necessary to engage experts from different fields. External advisors need to have a direct line of communication and report to the board of directors to act quickly in the most difficult cases. Solid communication planning must be carried out — in some cases, with additional external expertise. The necessity to act quickly might lead to some mistakes. Transparency over the feedback loops to ensure quick learning won’t paralyze the enterprise but increase its agility. Activating the best talent in finance and strategy teams is paramount. Leaders must understand cash flow fluctuations, including short-term pay-outs, fines, engaging with third-party experts, strategic and operational challenges, and new risks. Thinking in scenarios and performance tracking systems accordingly becomes a daily job. Having a healthy working relationship with auditors remains key at every step of the crisis management process.
4. Pay attention to and empathize with the needs of the workforce. Empathy and attention to the needs of the workforce is a must. In some cases, board members and the executive team must take pay cuts to show solidarity with the employees. Balanced communication with the executive team is, once again, a sign of a well-functioning board of directors. In any team, self-management can’t be overrated, as stress, fatigue, and uncertainty might prevent good judgment. In this context, mentoring and coaching options can be explored.
5. Enforce personal accountability at the executive level. Enforcing the personal accountability of executives is a must. Firing the CEO can be one of the most difficult decisions a board can make — but in a crisis, it can also be among the most critical. Directors may be concerned about how key stakeholders, such as major clients or funders, may react to the potential removal of the CEO. A proven breach of the law or the organization’s code of conduct, as well as actions that damage organizational health and market confidence call for an immediate removal of the CEO. An experienced chairperson won’t shy away from discussing this matter with their board. Hiring an interim CEO (sometimes from the ranks of the board or the existing executive team) and kicking off a professional search with a specialized headhunter must happen quickly, be communicated clearly, and imply support from the whole board in all-hands meetings, corporate communication, and investor calls.
Sadly, having overseen a CEO dismissal is quite often considered a bad sign on the biography of a non-executive director. Human bias and fears overpower good judgment in nomination committees and/or with the chairperson, especially when the roles of CEO and chairperson are combined. Ultimately, personal maturity and leadership readiness go beyond just financial KPIs. These qualities reveal themselves when individuals think beyond their personal preferences and professional exposure and put their shareholders and organizations first. Courage and humility are both essential ingredients of good corporate governance after all.
How Does Corporate Governance Change in a Crisis?
We asked three directors about their COVID-19 response. Here’s what they said.