According to corporate governance expert, Paula Loop, companies experience at least one board crisis every four or five years. That means every board should be prepared to step in and make important decisions in the event of an unforeseen issue.
Additionally, the public’s perception of corporate director responsibility has grown substantially. Whether it’s a public relations, technological, or financial crisis, shareholders and the public expect boards to not only be held accountable, but also to successfully navigate the company out of the crisis.
Is your board ready to fulfill that tall order? Here are some suggestions for being prepared.
Don’t just have a board crisis plan—regularly review it, too.
Crisis plans are a must-have for any board of directors. Paula Loop insists they should contain the following actions:
- “Engages a cross functional team for planning and execution
- Identifies crisis management leader(s)
- Delineates roles and responsibilities, including the CEO’s and board’s roles
- Defines the crisis escalation process
- Outlines expected crisis management activities
- Defines disaster recovery priorities
- Identifies outside advisors to retain as needed
- Provides guidance on crisis communication strategies, including use of social media
- Requires regular testing of the plan”
In addition to these elements, directors should periodically review the plan and gauge whether alterations need to be made based on changing technology, new information, or unforeseen circumstances.
Every director should be monitoring risk.
Yes, most major boards have a Risk Committee, but that does not excuse other board members from examining company risk on a regular basis as well. Old and new risks should be addressed in full board meetings in order to make the most out of the group’s skillset and knowledge base.
Forbes writer Davia Temin points out that early warning signs for risk can be missed by the metrics that most Risk Committees rely on.
Immediacy is everything.
In the age of instant communication and social media, news of a scandal or crisis can spread all too quickly. Previously, boards digested information and slowly assessed it during a time of crisis. In the modern era, they must expected act quickly and make decisions to help the company survive.
By acting too slowly, companies put themselves in danger of creating an even larger crisis. This makes the crisis plan even more important since directors don’t want to be scrambling to make decisions that could have been discussed and decided upon before a crisis ever arose.