In its capacity as a fiduciary for shareholders that oversees a company, a board of directors should be prepared to effectively oversee the response to an extraordinary circumstance or crisis that can potentially very negatively impact a business. Crisis management can differ depending on the event in question. Regardless, a detailed crisis management plan developed by management and approved by the board should be “on the shelf” and “rehearsed” to address such value-threatening and potentially life-threatening situations.
A crisis management plan should contain a broad framework suitable for addressing an unexpected challenge while providing flexibility for an organization to adapt to a given situation. It should note clear roles and responsibilities for different levels of a company, empower the right personnel to take the most effective steps, and provide a matrix to escalate given decisions, as required.
Effective board oversight also means seeing that any crisis management plan put in place is viable. Strategies are more effective if executives and key employees stress test them in advance. The effectiveness of steps as well as individual and team responses should be considered. Board members should be included and participate.
When planning for a crisis, a board might adopt a risk committee or put a risk matrix and perhaps a crisis plan under the auspices of the audit committee. Metrics can consist of both hard and soft data, including customer and employee feedback that may offer more information than hard numbers can. A risk matrix should be reviewed by the entire board periodically and include emerging risks.
Of course, you cannot anticipate every crisis, so any plan may well have to be modified in real-time as a crisis ensues. Even with a plan in place, management, overseen by the board, must be proactive in carrying out the steps necessary to manage a crisis. The specific actions taken may well vary, given the exigent circumstances. For instance, a product recall requires both a sizable logistics commitment and communications and other efforts to help protect a company’s reputation. A fire at a major manufacturing facility would demand supply chain changes and preserve customer relationships.
The most challenging crises are those that a board cannot prepare well for ahead of time. The death of an executive, a major cyberattack, an enormous natural disaster, or pandemic can be particularly challenging. Boards should not generally be involved in discrete operational issues. However, a thoughtful board should see that management has a plan for a crisis in place and tested. Should a crisis occur, a board should actively oversee management’s response.
Jonathan F. Foster
Founder & Managing Director – Current Capital Partners LLC