As a standard precaution, boards should take steps to handle potential crises before one arises. This is particularly so in light of the increasing risk of cybercrime and privacy breaches, and the broader impact of negative social media attention faced by all companies for a variety of reasons today.
According to a recent article in the Harvard Law School Forum of Corporate Governance and Financial Regulation, 65% of CEOs say that their companies have experienced a crisis in the past three years. In the article, Paula Loop discusses how boards can adequately prepare for a potential crisis in order to minimize any negative impact to a company’s operations, efficiency and reputation.
Start Talking and Make a Plan
As a starting point, crisis management should be a regular topic of discussion at the board level. Ms. Loop suggests that crisis management be included on a board’s agenda on an annual basis. Ideally, companies should also implement (and regularly review) a crisis management plan setting out who will be involved in responding to a crisis and the roles and responsibilities of each individual. It may also be helpful to discuss how other companies have handled crises, what made their actions successful, and how any responses could have been improved in formulating a response plan for future crises.
Sometimes, it is clear that a crisis has occurred. Other times, it is not always apparent that an issue has been elevated to the level of becoming a crisis. For this reason, it is crucial that directors work with management to define the scope of a crisis, so that all parties are on the same page in the event of a crisis. One key means of achieving this goal is by identifying triggers that would require management to inform the board of a crisis or potential crisis. Ms. Loop identifies the following examples of potential triggers that would require management to escalate an issue to the board: (i) people have been hurt, (ii) company property has been severely damaged, (iii) the crisis will have a significant financial impact, (iv) critical systems are offline for a specified period of time, and (v) an event occurs that is getting significant negative social media attention.
Review Feedback Throughout
Ms. Loop suggests that, during a crisis, boards should regularly review internal and external feedback on how the company is handling the situation. To effect this, boards should ensure that they receive regular updates from management and monitor messaging with stakeholders. If necessary, boards should consider appointing a special committee to help with overseeing how a crisis is being handled.
As relieved as everyone may be after a crisis has ended, the work is not over. In order to improve future crisis responses, management and the board should debrief with each other and other key stakeholders to reflect on what went well, what went poorly, and how any actions may be improved going forward.
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The author would like to thank Sadaf Samim, summer student, for her assistance in preparing this post.