Boardrooms In Crisis
Even with the private companies, the average retail investor and analyst knows little about what happens in these august boardrooms.
We all like to believe the directors on public company boards are wise, competent fiduciaries – until a crisis hits. Then we learn the unpleasant truth. Political appointees hog the public sector boards and we all know why PSUs underperform their private counterparts.
Even with the private companies, the average retail investor and analyst knows little about what happens in these august boardrooms. Most of us believed the aura big companies projected until the Tata crisis and then the Infosys whistleblowing broke the boardroom spell.
Whenever we talk of the role of boards in crisis situations, there will always be some current examples. Even as we write these words, Wells Fargo bank in the USA is facing a harsh report on its board oversight for allowing a culture of corruption. And the Raymonds story is still hush-hush.
How will your board act in a crisis situation? And what does it do right now? While numerous “experts” aired various views in media on all types of crisis, our experience is from protecting the reputation of the organization first and foremost.
Top of the table is to have the realisation that the buck indeed stops at the boardroom. There is no place where a board member can hide. While legal liability may be the top of your concern (including director-level fines and imprisonments), these are rare unless the crisis is of criminal nature.
More likely is having your reputation and career tied up in endless legal actions, giving depositions and so on. Meanwhile, your job prospects become wedded to those of a company viewed as tainted. Remember the Satyam fiasco? And heads will roll in the boardroom as well as in the C-suite, as we have seen in the Tata case. You cannot hope to wait the crisis out lest it will come back to haunt you.
Here are four ideas to make both your company and your board of directors “crisis ready”:
1. Have a crisis plan in place
This is the first rule, but the one most often ignored by boards. Prepare a solid plan showing who will be responsible for legal advice, public messaging, working with authorities, investor relations, etc., and assure that the plan works with regular tests.
This plan must also be ready for different scenarios. A product liability crisis, a leadership crisis, or a public relations/social media crisis will all require variation on messaging, responsibilities, and personnel, but you must be able to respond to all.
2. Respond quickly, but also adapt quickly
Once your crisis plan is activated, be able to change it as event demands. As Dwight Eisenhower wrote, “In preparing for battle, I have always found that plans are useless – but planning is indispensable."
Company crises have a way of coming from the one direction you never anticipate. Further, they always have nuances that twist even planned-for-disasters. The executive you never suspected will be the one committing the fraud. Someone will sue for a wholly unimagined sexual abuse. Remember the Phaneesh Murthy episodes, first at Infosys and then at iGate?
So yes, your crisis plan itself may sink. But your advance work on response scenarios, the contact list of whom to call first, second, etc., and the emergency resources you identified and catalogued will be very helpful when the board has to improvise on the spot.
3. It is OK for the board to be intrusive
There are many polite debates about how much the modern board should involve itself in oversight and activities traditionally handled by management. Once a whiff of crisis in the air, though, the rules change.
Ask more questions, require more information from the CEO and volunteer to pitch in on things like legal advice, investor outreach, fact-finding, etc. This does not mean elbowing into the CEO’s job just when it would be most confusing – but make clear that the board can and will be more active until the storm passes.
4. Know that the tempo of governance must speed up sharply
A board conference call at the end of the week will now have to occur in 15 minutes. An audit committee meeting for next month is now scheduled before lunch (and there may be another tomorrow). Text messages are all marked with multiple “Up” arrows for urgency. Leisurely board work is put off for the duration.
Recall the much-studied 1982 Tylenol fiasco at the drug major Johnson & Johnson? J&J received kudos for its quick 3-day response after the crisis. Today they would be crucified if they did not respond within hours. Compare this with the Nestle Maggi imbroglio when the first reaction of the company was denial, which subsequently was managed well.
(With inputs from Ralph Ward - an author and board governance specialist.)
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house
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