Crisis, not unlike change, comes slowly and then all at once. The coronavirus outbreak is a perfect example. What seemed at first like a China problem quickly turned into a global pandemic. And while this is not the first crisis corporate boards have had to deal with, for many, it is the first of this kind, on this scale. To be sure, boards can see economic recessions, natural disasters, activist investors, and management misdeeds coming to a certain extent. But a corporate leader who contracted a highly contagious virus just before the annual management leadership retreat is a totally different crisis scenario.
Boards typically play a role in advance of a crisis, ensuring that the organization’s leadership has a specific, detailed plan for managing risk, from employee safety and stakeholder communication to business continuity and financial modeling. In the event of an unplanned crisis like COVID-19, however, what role does the board play? “The coronavirus situation is actually much more than just about this virus,” says Tierney Remick, vice chairman and coleader of Korn Ferry’s Board and CEO Services practice. “It underscores how CEOs and leadership teams should leverage board expertise to develop thoughtful crisis-management plans and processes.”
Historically, though, that hasn’t been the case. Only 8% of boards have participated in crisis-simulation exercises with management, and fewer than 25% of directors have discussed the board’s crisis roles and responsibilities with management, according to data from the National Association of Corporate Directors. Dennis Carey, vice chairman and coleader of Korn Ferry’s Board Services practice, says boards should proactively assign a director to work directly with management on response plans. Although there is—and should be—a dividing line between operations and governance, during times of crisis “it’s important for boards and management to act as one team and communicate in a transparent, unified way to employees, customers, and investors,” says Carey. Depending on the type and severity of the crisis, he says, boards can designate a director to accompany the CEO in meetings with those constituents, as well as with civic and government leaders if necessary.
Carey advises establishing a regular communication cadence—certainly daily, or even every four hours depending on the scale of the crisis—between management and the board to allow for quicker decision-making and more organizational agility.
All crises have an impact on business performance and organizational priorities, of course, but the degree of severity varies depending on the circumstances. With the coronavirus, severe supply chain and service delivery issues are likely over the next several months. Those issues, coupled with the stock market crashes, are already causing organizations to abandon financial guidance, cut bonus pools, and reevaluate strategic initiatives such as mergers and acquisitions.
Boards should not only play an active role in helping management address these issues but also pressure-test them regularly over time. Remick says some questions and scenarios boards should anticipate include: Where are alternative areas and suppliers, and how quickly can they get up to capacity in the event supply chains need to be altered? How can organizations refocus on digital delivery in the event traditional modes shut down to service customers effectively? Does the situation create an opportunity to accelerate an M&A, or should those plans be put on hold?
With a crisis as severe as the coronavirus, the financial damage inflicted on organizations could force a change in workforce plans and organizational structure, says Joe Griesedieck, vice chairman and managing director of Korn Ferry’s Board and CEO Services practice. Put another way, it could result in a hiring freeze or, worse, layoffs. “Employees need to be apprised of the financial impact in a transparent way, and [companies should] be upfront about the steps they are taking,” says Griesedieck.
Experts say the worst thing a board can do in a crisis is adopt a defensive posture, as that will only encourage more uncertainty and fear, particularly among employees. The way to avoid that is simple: planning. “Make crisis response a part of the strategic planning process and conduct simple exercises to test them periodically so that there are no surprises when the next one occurs,” says Remick.