One common definition of a corporate crisis is an unplanned event that directs a significant amount of management’s attention away from its ordinary business. But that assumes an ordinary baseline exists. While people are hoping for a “new normal,” corporations may need to prepare for an era of “no normal,” reflecting the ever-evolving health impact of the COVID-19 pandemic, the associated economic and social disruptions, and the tectonic shifts underway in the role of corporations in addressing environmental and social issues as well as the shift from stockholder to stakeholder capitalism. As one Fortune 100 corporate director said at the most recent The Conference Board ESG Center Summit, “I haven’t seen a confluence of this many intersectional crises in my 30 years on boards.”
This heightened level of uncertainty changes the way boards and CEOs should view, and prepare for, crisis management. During the past year and a half, boards have stepped up to the plate in addressing the pandemic with increased attention to the areas that mattered most, holding special meetings, receiving frequent briefings, and making the physical, emotional, and financial health of employees a top priority. Despite these efforts, a year-end survey of over 550 C-suite executives found that only 30 percent say their board is able to respond well in a crisis.
While there’s no shortage of books on crisis management, here are seven practical steps that can help boards and their CEOs to prepare more efficiently—and thoughtfully—for when, not if, the next crises hit during this era of unpredictability.
- Be prepared for multiple crises to occur at the same time—for a long time—and to address risks as issues that intersect, not as episodic issues or events. As we continue to witness a convergence of environmental, health, social, and economic issues, it’s critical that boards and senior management look at how risks intersect. For example, when heat maps are being developed as part of enterprise risk management (ERM) programs, companies should not just view them as individual issues, but examine the potential intersections of multiple risks over time. Moreover, boards and CEOs need to ensure the company doesn’t just view crises as periodic, limited-time events, but instead has the staff, structure, policies, and processes to handle multiple crises occurring over an extended period.
- In vetting new directors, specifically consider their capacity to deal with crises. As companies seek to expand the diversity of skills and experience on their boards, it’s essential that they also recruit individuals who have the experience, ability, and temperament to deal with a crisis—for a prolonged period, if necessary. While crisis management may not make it into a director “skills matrix” as a distinct competency—though perhaps it should—it should be considered when evaluating candidates and discussed in the interviewing process. Boards should know how prospective directors have dealt with crises, particularly as part of a collaborative and deliberative body.
- Reassess both current and new directors’ ability to devote time to a crisis. The crises of 2020 also revealed that directors may be stretched too thin. At least one-fifth of S&P 500 companies and one-third of Russell 3000 companies do not comply with key investor voting guidelines on director overboarding, and a large majority of companies in both indexes do not specifically restrict the additional board services of their CEO. As part of the board’s annual self-evaluation process—and then again during the director renomination process—consider whether your directors have the ability to devote a significant amount of their time and attention, including on holidays, weekends, and evenings, not just if, but when, a crisis occurs.
- Schedule time to reflect on the board’s performance during and after a crisis. Boards and CEOs should set aside time on a regular basis to consider how they are handling the crisis along the way: it may be too late to ask that question only after a crisis is over because you may be on to the next one by that point. At a minimum, during the annual board and committee self-evaluation processes, they should look at the board’s responsibilities, composition, committee structures, and effectiveness, and ask: How have we done during crises, and what would help us perform better in the future? Take the time to delve into specific focus areas and assess how prepared you are, from human capital issues to cybersecurity and supply chain issues.
- In recruiting a new CEO, pay particular attention to the candidate’s ability to inspire trust with multiple stakeholders. Boards have long vetted CEO candidates against a broad set of criteria: from business judgment and knowledge to communication skills, to a strong financial and operational track record. And boards have traditionally asked how a new CEO will be viewed by the investment community. But the pandemic revealed an essential need for CEOs to connect with, and be trusted by, multiple stakeholders—not just the company’s stockholders, but its customers, employees, business partners, regulators, and communities. Whether at companies with a new CEO such as United Airlines, or with a longer-tenured CEO such as Walmart, the CEO’s credibility with employees has been critical during the pandemic. While the selection of a CEO is not a popularity contest, directors should seek input on how the new CEO will be viewed by multiple stakeholders.
- If they haven’t already, boards should ensure that there are emergency succession plans in place for the full leadership team, not just the CEO. While many companies have emergency succession plans in place for their CEO, or the C-suite, the pandemic revealed that a health crisis of this magnitude has the potential to affect a large swath of your executive team. A number of executives and board members could be out of commission immediately. Get out in front of this by developing systematic succession plans for multiple leadership positions. And don’t forget the board: know who will step in for the board’s chair or lead independent director, as well as committee chairs.
- Consider expanding the expertise of your crisis management team. While boards have been focused on employees during this pandemic, fewer than half the companies we surveyed at the outset of the crisis had human resources executives on their crisis management team. And only one-third had the risk management function represented. CEOs should ensure that the team not only has the requisite expertise but can understand and convey the perspectives of the multiple stakeholders who will be affected by a crisis.
The past 18 months have underscored the benefits of the seven steps discussed above regarding enterprise risk management, board composition, board self-evaluations, succession planning, and crisis management. Along with these specific steps, boards and management should recognize that it may be a long time before we can return to “business as usual.” If directors and executives expect the unexpected, they can lower their risk of burnout by not going into full-bore crisis management mode every time there’s a significant negative unplanned event.
The good news is that at many companies, the pandemic helped to increase the level of transparency and trust between management and the board. It brought to light the competencies of individual directors and the benefits of diverse perspectives and experiences. And it sped up the decision-making process, breaking down silos in management. That trust and transparency will also go a long way to helping boards and CEOs manage prolonged periods of crisis amid fundamental business changes.
Republished with permission of the author. This article appears on the Harvard Law School Forum on Corporate Governance.
Paul Washington is the Executive Director of the ESG Center at The Conference Board. His career has spanned the private, governmental, academic, and non-profit sectors. Before joining the ESG Center, Paul spent nearly 20 years at Time Warner Inc., serving for most of that time as Senior Vice President, Deputy General Counsel, and Corporate Secretary. He also served as Chief of Staff for the company’s Chairman and CEO. In addition to his tenure at Time Warner, Washington practiced law at the firm of Sidley & Austin and served as Vice President and Corporate Secretary of The Dime Savings Bank of New York. His public service includes, among other positions, having served as a law clerk for former Supreme Court Associate Justices William Brennan and David Souter, and for Circuit Court Judge David Tatel.
Lindsay Beltzer is Program Manager, ESG Center at The Conference Board, where she focuses on developing the Center’s Sustainability and Corporate Citizenship programming, including Member-only roundtables, working groups, Center Briefings, as well as public-facing webcasts and podcasts. She has over ten years of experience in corporate communications and marketing, having worked at Interbrand and Landor Associates. Her career has also spanned the non-profit sector. Before joining the ESG Center, Lindsay served as Chief of Staff at The National Organization on Disability.