Do you remember your last corporate or organizational crisis?
It’s unlikely that anyone who’s served on or supported a board during a time of institutional crisis will ever forget the experience. While the minutiae will hopefully fade away over time, you may find the impact and the lessons learned almost indelibly imprinted on your governance mind. This can serve you and your organization well, in that you’ll bring your hard-earned experience to the table when it comes to executing your responsibilities the next time such a situation occurs.
The governance professional’s experience and skills are all the more pertinent if term limits or other forms of board refreshment are in place at your organization. Boards turn to skills matrices to proactively identify recruitment needs. Such practices serve boards and their institutions well. They also imply that board chairs and boards themselves may be reliant on their corporate secretaries/governance professionals for institutional memory: What did the board do well the last time this organization navigated its way through a crisis? What, if any, shortcomings were identified? How can the board perform better the next time crisis hits?
How to Approach Crisis Communication in the Boardroom
It’s important, too, that directors continue to distinguish between board and management roles in the event of a crisis. A board is responsible for oversight and planning. Onboarding presentations and conversations typically include some variation of the message that an effective board will keep its “nose in and fingers out,” leaving management to do its job. That does not negate the need for the board to monitor and satisfy itself, in times of calm, with the organization’s crisis management (response) plan. When situations shift from the theoretical to the actual, the board may escalate its involvement if management’s crisis team doesn’t have the requisite skills, or if management itself is incriminated in a crisis.
While one hopes that directors will encounter as few crises as possible during their tenure, such crises do unfold. The range is broad, and it’s not limited to cybercrime, allegations of sexual harassment or financial fraud, technological or other product failure, natural disasters, data breaches and whistle-blower (protected disclosure) reports. Directors need only cast their minds to news reports from the past few days alone and they’ll likely identify at least one institutional crisis that’s the subject of mainstream media coverage. At least three separate crises were covered during the span of a single weekend this past month. Independent of great empathy for any innocent parties affected in such situations, directors’ minds will likely turn to the boardroom.
Oversight of Crisis Management
Consider the October 2018 release of the PwC 2018 Annual Corporate Directors Survey: 714 directors of U.S. public companies participated in the summer 2018 survey. The results reflected governance perspectives from more than 12 industries and a cross-section of companies, 76% of which reported annual revenues exceeding $1 billion.
PwC found that, when it comes to oversight of crisis management, 84% of boards reported that they have discussed management’s plans to respond to a major crisis. Sixty-four percent reported that their boards or organizations have identified or contracted with external advisors, such as law or public relations firms. Sixty-three percent of boards were able to confirm that they’ve discussed protocols to determine whether and when their organization should contact a regulatory or enforcement agency.
However, PwC reported that only 47% of boards confirmed that they’ve created a written escalation agreement or policy. An even lower percentage, 28% of boards, reported that they’ve participated in crisis management scenarios or tabletop exercises. For each of these five categories of governance oversight, a percentage of respondents (ranging from 3% to 20%) selected the “Don’t know” response.
Directors who have already worked through more than one crisis during their careers as governance professionals will understand the importance of good communications practices. When a crisis occurs, the board must act appropriately to resolve or respond as well as possible to the situation, and the organization’s reputation is also at stake.
In the face of such substantial pressures, directors have been known to meet independently of management in order to evaluate whether management has the capability to effectively manage the crisis at hand. Time rarely flies as swiftly as it does when an organization is in crisis mode, and directors are already in demand, independent of their board contributions. To enable timely monitoring and informed recommendations during a crisis, some boards have delegated specific authorities to an existing or specially formed board committee.
Statistics on such practices among Canadian boards may be found in The Board’s Role in Crisis Management, published by Osler, Hoskin & Harcourt LLP (Osler). The report details the findings of the Institute of Corporate Directors’ (ICD’s) January 2016 crisis management preparedness survey, which Osler prepared for completion by ICD members. More than 400 directors participated in the survey, which found that approximately 73.5% of respondents who had experienced a crisis while on a board had met without management to assess management’s capability of managing the crisis. More than 58% of respondents in the same situation reported that the board had appointed a special committee to coordinate the board’s activities in response to the situation.
During a crisis, there’s potential for the board, its Chair and/or a board committee to provide counsel to the organization’s CEO and to serve as a sounding board. The board itself may need to consider documents from external counsel and/or public relations advisors. With the potential for such an assortment of correspondence, directors should ask themselves how they and their organizations have equipped their board – and themselves – for such sensitive and crucial communications.
Using Board Management Software for Crisis Management
In April 2018, Diligent Corporation commissioned Forrester Consulting to undertake a study to evaluate the technology used for board governance. Forrester surveyed 411 governance professionals across 11 countries in North America, Europe and Asia Pacific. The results are published in Forrester’s October 2018 report, Directors’ Digital Divide: Boardroom Practices Aren’t Keeping Pace With Technology.
The study found that, while 19% of North American boards had experienced a crisis situation within the past 24 months, the rate of crisis incidence rose to 30% in Europe and 37% in Asia Pacific. Forrester also found that 50% of internal board communications are conducted over personal email. Little surprise, then, that the same study found that 87% of boards are concerned about the security of their board communication and data sharing.
What, then, happens when a crisis visits an organization? A governance professional may close the office door and commence a series of quiet, one-to-one phone calls, beginning with the board chair, to alert the board to the situation. Governance protocols may instead call for a conference call or a web conference – both of which imply a confidential, written communication to coordinate arrangements.
Forrester found that 40% of boards that had experienced a crisis in the previous two years received no help or were even hindered by their current board software from receiving information from their legal counsel. Of the regions surveyed, North American boards were least helped by their board management software when trying to facilitate secure communications between directors during a crisis.
Enterprise Governance Management (EGM) addresses these challenges by providing technology for safe communications, including the sharing of sensitive materials. Directors should not only consider the capacity of their board to have discussed and understood the organization’s crisis response plan, team, protocols, escalation policy and more, but boards benefit from also having remote and secure access to all such information, and more, when needed.
Directors will want to communicate and share documents with individuals, the board as a whole and perhaps with a specific group of directors. Diligent Messenger, which can function as a stand-alone product as well as integrating with Diligent Boards™, enables directors to do so in real time. While this component of EGM is useful throughout a board’s undertakings, it’s particularly beneficial in times of crisis.