A boardroom in the midst of a full blown crisis is not a place for the faint-hearted. The stakes are high and very serious decisions, that may have long-term business implications, need to be made quickly and, often without all of the necessary information available.
However a crisis does not need to be a business-ending event if both the board and the executive team are prepared in advance to handle one and, sometimes it can actually be something that will leave the company stronger than before it hit.
Here are three tips that board members need to consider in order to be prepared to manage the next crisis.
1. It will happen to you
Research from Oxford Metrica has found that in any five year period, a public company has an 80% chance of suffering a crisis that destroys at least 20% of its market value above and beyond market volatility. Meanwhile research from Deloitte indicates that 73% of boards say that reputation is a vulnerability for their business – but only 39% had a plan to address it. 23% of boards have not discussed the company’s crisis management plan AT ALL.
This data indicates that many boards are aware that a significant crisis is very likely to happen but many have not done enough to mitigate against it or prepare for the inevitable. As the protector of shareholder value – there is an onus on the board of a company to ensure that it is prepared to respond to a crisis.
2. Time is of the essence
News no longer breaks it tweets. In the current environment crises are now measured in tweets per second and therefore you have to communicate at the speed of your audience in order to have any impact or control as the crisis breaks. The need to have only a crisis manual is long gone. Companies must have a team that is prepared and trained to work together during a crisis. They must be experienced and have the necessary support available to them. Because of the need for speed, the immediate role of a board when a crisis breaks can be quite limited – but it needs to ensure that its executive team is prepared and has the authorisation to respond to an emerging crisis.
Make sure that you know that the executive team is actually prepared for a crisis. Ensure that the team have participated in regular (once a year) crisis simulations and know how to respond quickly. Is media monitoring (traditional and social) in place to warn of possible problems? Are the communications channels in place internally to ensure that potential crisis are communicated to the right people?
3. Understand your role
From the board’s perspective, there are two fundamental types of crises: either management is credible and in command of the situation; or management has lost credibility or is in some way impaired and the board’s role changes fundamentally depending on each situation.
When management remains at the helm, even if the crisis is not yet under control, the board’s role can be very much supervisory. It should be in position to:
- Provide counsel
- Validate the overall response strategy
- Ensure shareholders’ investments are being protected as much as possible
- Offer resources, connections, or other assistance
- Review crisis response with management in an after-action debrief
Above all, the board must allow the rapid-response command-and-control structure for incident management to function.
However, if management is impaired in some manner, the board’s role might be quite different and more involved. It might have to:
- Hire external legal counsel to conduct an investigation
- Replace management – in running both crisis response and day-to-day operations – with a member of the board
- Serve as the spokesperson to media, shareholders and other stakeholders
It is essential that your board has the necessary skill sets in order to manage both types of crisis. Who would be the media spokesperson for the board if required? Ensure that they receive the necessary training now before a crisis hits – it may be too late to seek training during the crisis.
A crisis can be traumatic and extremely challenging for any business. However with the right planning any company can reduce the potential long-term reputational damage and ensure that it survives until the next one!
 Value Reaction™ is a proprietary metric of Oxford Metrica which measures the impact on share price performance of an event or portfolio of events. It is a modeled share price reaction, where market-wide influences have been removed and returns have been risk-adjusted. It is an excess return, adjusted for beta, and captures a firm-specific measurement of impact.
James Dunny, EMEA Head of Crisis & Issues Management for FleishmanHillard. James can be contacted via email, James.firstname.lastname@example.org or Twitter, @jamesdunny
The views expressed in the posts and comments of this blog do not necessarily reflect the views of the Institute of Directors in Ireland. They should be understood as the personal opinions of the author. The content of this blog is for information purposes only and the Institute of Directors in Ireland is not responsible for the accuracy of any of the information supplied.