Is Your Board Crisis Ready?
A recent conversation with a senior director prompted this article. A board he serves on has a very busy Chair. Not uncommon.
The challenge for the CEO of the business is that the Chair is never around to take a call and fails to call back when requested. The effect is that the CEO uses another board member [the senior director mentioned] as the primary sounding board.
I raised the question, ‘how would the board respond in a crisis?’ The answer was ‘not very well’.
Crises happen! There are many recent examples in New Zealand. These might include:
- Serious conduct issue found with the CEO or other key executive/s
- Major differences of opinion between shareholders
- Major regulatory changes emerging
- Disruptions due to trade disputes
- Major failure of critical assets
- Environmental disaster
- Loss of market confidence due to the failure of a major restructure to deliver promised benefits
- Disruption caused by competitive threats or new technology
- Loss of a major source of revenue
- Collapse of the relationship with government or loss of ‘social licence’
These crises need directors to give time and energy ‘above and beyond’ what might be considered ‘normal’. The line between ‘governance’ and ‘management’ is blurred - and for good reason. The executives might get paid the big bucks, but the ‘buck stops with the directors.’
From our conversations with boards, it is clear that you don’t necessarily need ALL directors to be able to be ‘hands-on’ BUT you do need a core team who is able to ‘drop everything’. The question then becomes ‘who?’
- Really know the business
- Have the time
- Have the trust of the executive
- Bring significant executive experience
Exploring each of these…
Really know the business. They must have a strong grasp of the business context and competitive landscape and they must also know the major customers, be familiar with the operations and understand the capability of key suppliers. They are likely to have served at least 3 years on the board (any doubts on this one, ask me about the failure of UBS when none of the directors understood how 40% of the bank’s profits were made).
Have the time. This is a real challenge for many senior directors. Dr Richard Le Blanc talks about 3-5 board positions as being a ‘maximum’ – counting 2 per Chair role. In New Zealand, it is very common for directors to have many more. but at what cost to the boards they serve?
Whilst having executives from other organisations on the board may a good idea, these individuals are not helpful in a crisis.
Have the trust of the executive. When we survey boards, it is very common to hear individual directors rate themselves higher than their peers, and also for executives to be quite critical of their boards, or at least some of their directors. In a crisis you must have directors who can work as part of a trusted team with their executive colleagues. Having already established trust is vital and this means time invested, trust is earned!
Bring significant executive experience. So, you have met the other criteria, but if none of the 3 or 4 in your ‘crisis’ bring experience in actually managing something of a similar scale to the organisation they are governing, then you’ve got the wrong team. Ideally some of the experience is recent. [An executive recently bemoaned the contribution of their Chair, saying they were forever harking back to their executive career leading a business with no digital threats, little regulatory oversight and totally different business challenges.]
A quick look across our major listed business would appear to reveal some vulnerability.
Does your board have a core group who could ‘do what it takes’ in a crisis?