Governance Bites #73: boards in crisis situations, with Dr Peter Crow

In this episode, Mark Banicevich asks Dr Peter Crow about boards in crisis situations. His questions include asking about critical leadership qualities, balancing the needs for quick decisions with thorough analysis, and prioritising issues. He also asks about the board's role in managing relationships, building organisational resilience, and post-crisis reviews. 
Dr Peter Crow has a PhD in corporate governance and strategy. Not only is he an experienced chair and director, he has also designed and delivered governance courses in New Zealand (for the Institute of Directors, and Governance New Zealand), and overseas, in countries including India, Kenya, Lithuania and Ireland. He has presented about governance on five continents, and he works with and advises boards around the world. 
#governance, #leadership, #corporategovernance, #boardcraft, #decisionmaking, #makingadifference, #ceo, #governancebites

Transcript

0:00

Hello, I'm Peter Crow, board advisor, working globally. Delighted to be here. Today we're going to talk about boards and crisis situations. Hi, I'm Mark Banicevich. Welcome to Governance Bites, and as you just heard, today I have the pleasure again to spend time with Peter Crow. Peter, thank you very much for your time; I really appreciate it. It's very difficult to get some time in your diary sometimes — we’ve got to get you in the right city at the right time, so I really appreciate you spending time with me. Thank you. It's fantastic, thank you. As you said, the topic du jour is around governance when an entity is going through some form of crisis. Yes. So, to start off with, what are the most critical leadership qualities that you need when an entity is going through a crisis situation From the board perspective? From a board perspective, yeah. So for a board perspective, there are two or three things. The first thing, that I think is most critical is that the board is available, right. So often in a crisis, the board might be aloof — we meet once a month, once a quarter, whatever it is — but if the brown stuff hits the fan, the chief executive's got his or her hands very, very full, and having some air cover from the board is crucial. So, certainly the chair, but the rest of the directors need to be available.

That's the first thing. The second thing: 1:25

there's an amazing leadership quality called,“Don't Panic,” right. So, considered and responsive, which comes off that — ready to engage. And then the third thing is: don’t try and hide. Assume that whatever has precipitated this crisis — whether it was a manufacturing fault that's caused some illness amongst customers, or whether it's a tragedy because of plant failure, or because we've run out of money, or whatever it is, assume the public know. There's a critical role for the chair here to be working with the chief executive as to who is going to front the media. That we answer questions well, and that we protect the chief executive and the top table to work through the crisis, and to stabilise the business. Excellent, thank you. That raises an interesting point there, because the examples that you gave were around an entity going into crisis. We had an example, of course, a few years ago with Covid - Yeah. - where all entities went into crisis at the same time, - They did. - and when we have vocational directors— directors who might be sitting on four, five, or six boards, all needing to be available for all of their boards at the same time — coordinating the diaries of seven or eight people that are on seven or eight boards, trying to... That would have been a real logistical challenge at the time. Massively, massively. But the way to deal with it is relatively straightforward if we're prepared to be pragmatic. Because we don't need all of the directors there all of the time. We could, for example, say, "Let's set up a two or three-person crisis committee."And Sally and Johnny are on this particular one, that's fine. But Bob and Sue are not"necessarily, because they've got two other different boards they need to be"attending to." And the chair orchestrates all of those communications. But the directors do need to be available if they need to come together on a Zoom call or whatever to make a decision. Yes. But most of the time, we're looking for the delegation for those immediate decisions to lie with the chief executive, not the board. Yes, the board is more of a conduit for comms [communications], leaving management to deal with the situation. Okay. That's what I've seen work quite well. Okay, right, thank you. You raised the matter of a quick decision there. In those situations, how do you balance the need for a quick decision with the actual need for a thorough analysis, as well? It's a contradictory direction. There's a push and pull there, isn’t there? There is. Look, I think maturity and wisdom comes into this. And we neglect it to our peril. Because the chance of none of the directors having ever been through a crisis before is probably quite low. And so there will be some heuristics, some inherent knowledge, perhaps some real-life experience, that's available. So, we don't want to do a perfect analysis, because it would take too long. Yes. But we've got to work out what is good enough. So it’s useful before we have a crisis to know what a high-level response might look like, what a set of, quote, "delegated authorities", or decision points might be. How we might manage stakeholders, if I can just use that as a general catch-all - communications. So that, in advance of a disaster, we know what to do. Right. It's no different, I think, than a risk management framework, for how we know what the risks are, know how we're going to respond. You happen to call it a crisis, I’m comfortable with that, but we’ve got an activation of a situation, and if we haven't planned, and we haven't thought about it, then likely it's going to end up a mess. And probably rightly so. Yes. And you probably also follow that, - Excuse me. - you've got the appearance of a duck swimming, where the board at the top will be relaxed, and dealing with the issue. Underneath it, you’ve got management and a number of the senior staff being the legs under the water, doing a lot of work trying to get the analysis done, over two or three days, to produce good information. Or sometimes, two or three hours. Yes. There was a situation a few years ago with Fonterra, where they had a mid-level manager in front of the media responding to a situation. The senior executive, chief executive, were nowhere to be found. And nor was the board. And the poor old manager - I'm sure he was a good manager - got in front of the TV, looked dishevelled, not sure that his shirt had seen an iron that day, and had bright lights in front of him. And fair, but probing questions, not attack questions, fair but probing questions. And that’s most difficult. So, I think before the situation, we need to know who's going to speak, how they’re going to do things, and that we've got those rapid response cycles. Right, yeah. That’s fantastic. Yeah. Are there any particular frameworks or models that you find that are useful in working through a crisis situation? Look, having a decent risk management framework is absolutely critical. Right, so we say, look, there are some risks. First off, let's define the terms: a risk is something that, if it happens, is going to have a material negative effect. And it could be at an operational or departmental level, it could be at a whole-of-business level, or, if I use the term strategic, it could be material to the viability of the business. Okay. So, you’ve got three layers, if you will. Yes. And the lower layer, you might have divisions or departments; the mid-layer is, the executive team's going to handle that; and the top layer, the boards want to be all over that. And they’re not necessarily the same risks. It's not, because it might be there's a strategic risk about the unexpected departure of a chief executive. That would not appear down further. No. For example. Yes. And so, having a solid risk management framework, and the board being convinced that we've identified the right strategic risks at the top end. That management’s got the right mid-level. The board doesn't need to know about the detailed ones, but management does. Yes. And that we have for each identified risk, that we know what the chance of it occurring is (so, frequency).

We know its severity is: 8:43

- Yes. - low, medium, high, or five of the categories. So, and that can be plotted on some sort of heat map. And then for the big ones,

we've got appropriate responses: 8:52

whether we’re going to live with it, whether we’re going to design it out, whether we’re going to streamline processes, whether we've got a plan B — whatever it is. And, and so, that sort of approach is pre-emptive. But it does mean, you know, Whakaari (White Island), the mosque shootings. I’m just taking some seriously extreme examples. Yes. Christchurch earthquakes, or, as you said, Covid. What is our contingency? A board could ask a question: what is our contingency plan in a situation such as any one of those, right. And maybe we need to be like the emergency management people down in Wellington, where we have, where we have exercises. So, a few months ago, the government ran an exercise on the rupture of the Alpine Fault. And they had a whole lot of planning. Then they did the exercise with multiple actors. And they were down in the Beehive [NZ Parliament] bunker and did the whole thing. And then they did a thorough analysis. Now, some would say it was all naval-gazing, others would say it was a highly valuable exercise. Absolutely. Now, I would hope they'd be better prepared now, having done the exercise, than just done some paper. Absolutely, yes. The map is not the terrain. So, understanding in practice what it might look and feel like before the disaster is much better than just banging into it, and then trying to work it out on the fly. So, the frameworks that I’m talking about are frameworks to do with risk management, but also frameworks to do with how we’re going to communicate: who says what. Yes. I wouldn’t want to put a particular name in front of you, because I’m not familiar with particular names, of frameworks, that is. No, no, okay. Yeah. That brings to mind a lot of the work that I do with some of the smaller businesses. And businesses in financial services. Yeah. Business continuity plans are an essential part of what's required for a licence. So, that’s another thing, yeah, absolutely. And then testing, as you suggested, your business continuity plan. So, thinking about what are the real risks that could go wrong and interrupt our business in a very short timeframe? And if that were to go wrong, what would we do? Let’s test it and see whether it works, debrief afterwards, and change our systems and processes off the back of what we learn. Yeah. I remember 30, 35 years ago, in the days that we had computer networks, and all of our backups and storage was on-site, you know, all of this sort of stuff. Yes. Not only have we got a backup programme, but we’ve got a recovery programme. So, a disaster would be simulated, and can we get it all back off the backup tapes? Yes. And I remember, as a reasonably junior guy — I might have been 25 or 30 years old— where we couldn’t get it all back. So then we had to go to the target minus one day. Yes. And fortunately, we could get it all back. Right. But we still lost a day’s productivity, you know. Absolutely. Now, a crisis will often affect multiple areas within a business. Yep. It might have financial impacts, operational impacts, reputational impacts. Yep. How do you prioritise those different issues when you’re managing a crisis? When you jump into water, how wet do you get? Structurally, the temptation is: we do this one, then this one, then this one. The reality is, it’s far messier than that. So, I think for an organisation-wide or sector-wide, you need to understand where those impact points are and have responses or components for each of those, and then the integration between them. Sounds very structural and measured, probably my engineering background, but you need a heads-up display, if I can use that language. You need an awareness that there are these multiple pieces, they are interacting, and that’s the job of the leadership team or the crisis management team or something like that. The chance, the desire, the preference to sequence them through and prioritise them, for me, is folly. Any or all of it can happen, it can come in from left field, and you’re not expecting it. You’ve got to be prepared. Right. It’s that Boy Scout motto:"be prepared". Yeah, absolutely. Yeah, and that’s a key element of what we've talked about, is thinking in advance about what could go wrong and how would you react to it? And getting your plans in place. Yep. And as you’re suggesting, you know, potentially somewhere in this crisis management scenario, there’d be a small group of people that are sitting with a whiteboard, with a bunch of headings, with things like finances, reputation, operational, customer impacts. What is going wrong? How do we fix it? What impacts can it have on the other areas? What role does the board play in managing the relationships with stakeholders during a crisis? You mentioned before having a plan of who talks to whom. Various stakeholders involved in your business, whether you've got your employees, your internal stakeholders, - Yeah. - you’ve got customers, your communities, and so forth. Yeah. What role does the board play? It depends on the organisation, obviously, but I think there’s a, you know, in a co-operative, a Fonterra, for example, or a progressive, you know, those sort of more co-operative ones where the board directors are much more visible within constituencies. You need a highly visible board chair, and you may need less visible but still engaged board directors or board members. But most of the comms, it might have strategic impact, but most of the comms need to lie with the chief executive. Certainly, all the staff comms are chief or chief’s people. We see that when there’s some sort of national-level or regional-level disaster, you’ll get the parliamentarians involved. So, they’re equivalent to board members. Yes. And that’s about confidence and engagement. When I remember, many years ago now, Princess Diana was tragically taken in that Paris accident. The Queen and many others sat there behind their gates and their various castles or palaces and said nothing for several days. That’s right. And the world wondered what was going on. And the world filled in the blanks. And part of that was right, maybe. Part of it was certainly wrong. But the board can manage and mitigate those various interest groups by having the chairman available and visible from time to time. I think the key thing goes right back to the beginning

of our conversation: 16:13

the directors in the board have to be available. And if we’re sitting there with our sleeves rolled up in some sort of crisis meeting and we need to talk to company X. "Who knows company X?" "I do." Right, okay."Guess what? That’s your job." Yes, right. So you know, so there’s this preparedness to put your shoulder to the wheel within the context of this pre-prepared plan. Yeah. You've answered this to some extent already; I’d just like to elaborate on it a little bit. What role does the board play in resilience to crises? Yeah. So across the — I’m going to say across a 12-month period. But depending on the sector and the level of— let’s just say, danger or crisis possibility in the sector — it may be at a different frequency. But let’s just go with annual here now. Yes. So, I would expect, in a board annual work programme calendar, to see some sort of evidence of the board being briefed on the crisis slash [/] resilience plans. That the board can satisfy itself that it’s got business continuity plans at both an operational and strategic level. The risk management frameworks in place. That they seek external advice. Because, despite management portraying, it’s not necessarily management having all the answers. So, having an additional lens from an outsider can be quite helpful, as well as the expertise that’s around the board table. So, in terms of ensuring resilience, I would expect that the board would seek those periodic reviews, that they would use not only their own expertise, but externals. There would be a "no fear and no favour", because jobs are not on the line — this is about working together in advance of a prospective situation. So that if there is something happen, then what we can do is deal with it with a degree of confidence. Reality check: is it Mike Tyson, or was it somebody else who said, you know, the best-laid plans are fantastic until the first punch. Right. Yes, I think there's - And the first punch, in this case, is the activation of a disaster. Yes, yeah. And so, the resilience is around — or, as you with your preferred sport, there’s a training regime, and that’s about preparing your mind and your body, so that you can compete well. I don’t think this is any different. No, yeah. Everything’s in the preparation, and then if a crisis happens, it’s unlikely to be exactly what you prepared for, but the preparation that you’ve done is going to give you something that will cross over and enable you to react to. Yeah, look, I think that’s right. And I would add, though, building on that, there’s this notion of, there's some core principles. And they're pretty much going to stay the same. Yes. And then the way we put it into practice — yeah, we've got programmes and responses— but this particular situation might need this bit of this practice, this bit of this practice. But we've already got the principles which provide the framework. Yes. And that gives us, as a board, them as management, yet other them as staff, confidence that we're not just running around like headless chooks [chickens]. Yes. Yeah, absolutely. I've got one final question

for you on the topic, and that is: 20:01

post-crisis. Yep. So, the board has been through, the company’s been through and reacted to the crisis. Yep. And then there's usually some sort of post-crisis evaluation - Right. - to take the learnings from it. How does the board go about that? Number one: it's got to do it. Please don’t assume that they always do it. Right. I've seen plenty of examples where,"Thank gosh, that's over. "Right, now, let's get on with business." Yes. Right. Without being cynical, it does happen. But the very best boards, the generally capable boards and good chief executives, will take the opportunity to do some sort of learning feedback loop review. So, what a board can and should be doing is no different from a leadership team: let's get the data, let's sit down in a room, let’s — internally or externally, probably doesn’t matter — but let's facilitate, let’s go through this. But I do think there's a question that is less commonly asked that does need to be front and centre through that process. And one is that straightforward review. Did things work? Did they not work? What do we change for next time? That’s all good stuff. But sometimes crises or disasters — whatever — lead to a step change in the market or the situation. And so, the very best boards will lift up their strategy document, as well, and say: "Okay, so we've been through that,"we’ve stabilised it. Do we carry on, or actually, what we should do is"have a look at our strategy and make sure it’s still viable based on"what we’ve now been through?" Because there may be a phase shift. Yes. And if there’s a phase shift, running the old strategy might be folly. So, we're going to then go back. There was an exercise — and I’m going to name the organisation, the Institute of Directors — but there was an exercise in the Institute of Directors when I was involved, writing, and developing the course, and teaching on it, where there was a disaster situation, but it was in the context of strategy. And there was a, not so much a trick question, but there was a situation in there where there was a problem, and we were asking the participants to review some strategy, because the best answer is: stabilise the business, fix the crisis, then look to the future. And I think that’s the key thing from the board's perspective: what do we learn from the exercise of going through — or not the exercise, the experience — of going through the crisis? Then, secondly, what does the outlook look like, and is it any different from before? And what, if any, different strategic settings do we need to take? Peter, that was fascinating. Thank you very much for your time and discussion on that. I’ll look forward to catching up again soon. We’ll do it. And we’ll see you next episode.