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Shoring up the boardroom

Posted: 06/22/2016 - 20:06

Crisis is now an everyday occurrence, and is a risk that can be mitigated but never truly eliminated. In a world that seems to be increasingly prone to crises of every conceivable type, a recent survey from Deloitte – A Crisis of Confidence – finds a broad “vulnerability gap” between the awareness of threats and the preparations to actually handle them. The report draws on the views of more than 300 board members from major companies representing every major industry and global geographic region, with annual revenues that ranged from US$500 million to more than US$20 billion or equivalent. Some of the challenges identified should give all senior executives pause for thought about their personal and organisational level of preparedness should a crisis hit, and there are clear signposts that there is more to do before companies can really profess to being “crisis-ready”.

Defining Crisis

The first key challenge to address is the definition of a crisis. It’s not at all uncommon for businesses to equate crisis management with business continuity management. Although the two things are related, in many respects such an attitude risks an overinflated sense of security simply because the company’s business continuity plan is robust, tried and tested. Business continuity tends to focus on incidents that affect processes, facilities or systems. The resultant mitigation plans are often equally linear, specifically designed to, as the name implies, provide continuity until normal business can be restored.

However, a true crisis has the potential to be much broader, strategic and much more ambiguous. At its worst, a major crisis can threaten the very existence of even the largest of companies and, whilst such events are thankfully rare, their potential impact should drive all boards and senior executives to prepare for them. Dealing with a complex crisis demands strong, decisive leadership ready to take tough decisions often under real time pressure and with less than fulsome information. It requires an ability to deal with ambiguity and demands good co-ordination, organisation and communication.

Even traditionally strong and effective teams can be sorely tested when the crisis spotlight shines brightly. Human behaviours can change, especially if the leadership team or elements within it are under job threatening pressure. At times like this, prior preparation is critical in getting through tough times and, hopefully, emerging stronger from the crisis experience at least in the longer term.

Feeling Ready versus Being Ready

The Deloitte report highlighted that whilst 79% of board members believed their organisation would respond effectively if struck by a crisis tomorrow, only 49% said that their company engages in monitoring or internal communications to detect trouble ahead. Just under half (49%) said their company has playbooks to deal with likely crisis scenarios and, more starkly, only 32% said their company engages in crisis simulation or training. Perhaps most strikingly, 73% named reputation as a key vulnerability but only 39% said their business had a plan to deal with it. This area alone should prompt action amongst executive committees and boardrooms. Some 30% of those surveyed with experience in past crises said that their reputations recovered in less than a year. A further 16% estimated that reputational recovery would take four years or more. The key to this is to really understand the stakeholders and have clear plan of action to communicate with them from the outset.

Leadership, Leadership, Leadership

The damage done by a serious crisis can be deep and long lasting. Responding to and recovering from such a crisis requires direct and strong leadership from the company’s top team. Consequently, leadership must be a core competency for CEOs, senior executives and board members. This competence can only come through training, rehearsals and direct experience of crisis situations. Equally, whilst a board might well operate at relative distance from the day-to-day management during business as usual, it must be prepared and capable of operating much closer to the coal face in times of crisis. It is imperative that the board and the C-suite are able to operate as a coherent body and they must be sufficiently in touch throughout the organisation to be able to sniff out trouble even when the upward reporting is telling them that all is well.

Regulatory and legislative changes, such as the Senior Managers’ Regime (SMR) in the banking sector, are already driving changes in board and C-suite behaviours and that must be a good thing. However, for understandable reasons crisis management is often not on the top of their agenda and, as a direct consequence, training and rehearsal for crisis situations is routinely delegated downwards rather than remaining a top level focus. This risks leaving key members of boards and executive committees less than well prepared to face the challenge of a full blooded corporate crisis when it comes to call. At that point, downward delegation is no longer an option and only high-quality top-level leadership will do.

Transferring Anxiety into Action

Another key finding of the survey is the “vulnerability gap”, whereby board members see the threats to their organisations but recognise that they are not ready to handle them. This gap varies markedly from company to company, depending on the threat. However, across a sample of twelve potential crisis types there was always a gap between perceived vulnerability and preparedness. Whilst 63% of those surveyed felt vulnerable to a terrorist threat or man-made disaster, only 18% said they had a formal crisis plan to cater for one. Corporate reputational risk is cited as the biggest vulnerability (73%) but only 39% have a plan to mitigate the risk.

The good news is that a small number of relatively small and easily achieved steps can sharply reduce this gap and take an organisation from being crisis vulnerable to crisis ready. Planning, training, communications and validation encompass a wider range of more detailed steps that build maturity in crisis readiness. As the risk of crisis cannot be eliminated entirely, it is equally important to consider how to respond to and recover from crisis events across the full spectrum of severity. As ever, the devil is in the detail but, in the teeth of the storm, clarity around roles and responsibilities, communications and support mechanisms are key to survival. In the crisis aftermath, holding a post-event review and ensuring that the resultant lessons are learned for the future are crucial steps towards emerging stronger.

Last Word

The perspectives and concerns of those surveyed in A Crisis of Confidence are illuminating and should offer a clear warning for all senior executives across all sectors. Hope is never a strategy, certainly not when it comes to crisis management. Closing the vulnerability gap and making your organisation more crisis ready is a clear leadership responsibility. A few simple steps can make all the difference when the inevitable crisis comes to your door.

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