Topics:   Board Composition,Risk Management

Topics:   Board Composition,Risk Management

July 30, 2020

Has COVID-19 Made It Essential to Have a Crisis Executive on the Board?

July 30, 2020

Harvard University professors and crisis experts Arnold Howitt and Herman “Dutch” Leonard have been researching and teaching crisis management in a series of Executive Education Programs at the Kennedy School of Government for decades. In a 2012 crisis seminar, they made the following statement which is apropos to our current national health crisis:

“Devastating crisis events of massive size, which we refer to as landscape disasters, have been occurring with distressing regularity…. What kinds of behavior are most valuable and effective in the moment—that is, during rapidly unfolding, urgent, and high consequence events…?”

Although Leonard and Howitt’s emphasis has been on executive education for senior government officials, every organization, both public and private, will encounter an enterprise crisis at one point or another. COVID-19 is that current “rapidly unfolding, urgent, and high consequence event.” In real-time, companies across the globe are realizing a successful response is critically dependent upon their board of directors and senior management working in concert to affect a positive outcome.  

This raises a question: After the dust settles from the current pandemic, will shareholders expect that a company’s board of directors include an executive with a crisis management background, or should that remain within the company’s business continuity management portfolio?

The “Right Stuff” for the New Normal

Amid any crisis, it’s difficult to predict what the new normal will look like, but it can be agreed upon that there will be changes and corporate governance won’t get an exemption. We’re not arguing for or against the inclusion of a crisis executive to a governance board, but rather initiating a discussion on the topic. We recognize that one of the key rules of good board governance is, “Noses in, Fingers out!” But good management requires solid experience. And now is the time to address the possibility of new experience needed in the board room.

Let’s examine more closely what qualities you’d expect an executive with a crisis management background to possess and how that could impact a board of director’s and corporate management’s response to a global crisis such as COVID-19. The Top Ten Essential Qualities of A Crisis Manager, authored by Mohammed Chughtai for Forbes magazine, describes qualities one could argue are relevant to any leader, not just a crisis leader. That said, academics seem to universally agree that these essential qualities are specific and critical to crisis management:

  • an excellent communicator who understands the business;
  • decisive leadership; and
  • calm, proactive, committed, creative problem solving.

A board of directors’ approach to overseeing the management of a crisis consists of being able to recognize the three major attributes of a crisis: threat, decision time, and uncertainty. What is the threat to the employees or shareholders, or to the financial stability of the corporation, and what is the uncertainty that needs to be reduced as soon as possible? These skills do not need to reside in one individual, but they are needed to recognize the dimensions of a crisis and to develop a coherent strategy to address the issues that need to be changed in the early stages of a crisis warning. (See Warren Phillips and Richard Rimkunas, Crisis Warning, Gordon and Breach, 1983).

Directors of companies need to recognize that these three attributes are present in every event that a company faces in a crisis. Some events come with high threat, short decision time, and high uncertainty (surprise). COVID-19 would seem to be one of these types of events. Deliberative situations characterized as ones with high threat over an extended time and with surprise, like shareholder demands for change, are a different type of event requiring quite different skills. The military and most hospitals practice extensively on response routines for these challenges. Companies do not normally do so. The challenge to a board of directors is to identify the most likely events, to recognize the nature of their corporate culture, and to identify how to recognize these events and how to oversee the management of each type.

Good corporations recognize the most likely challenges like shareholder demands, accounting errors discovered in an audit, or the loss of a major asset in the company. They are well prepared for these issues both in the board and in management. They turn to expert advice from outside the company and usually run regular exercises to make sure everyone is up-to-date on crisis responses.

A company’s reputation and financial success is dependent upon how it responds to a crisis—but all crises are unique. As nominating and governance committees consider the composition of a board of directors in a post-COVID-19 environment, they should consider which skills they need in house and which they can or should contract from elsewhere. The key here is to ensure that skills in house are able to deal with the high threat, short-term time demands, and uncertainty until the dimensions of a crisis are well-defined and the need for response is agreed upon.

We add one more suggestion. The need to buy time to protect the assets and the culture of the company will vary with the dimensions of the crisis. This means that a broadly experienced board, with solid dialogues with management on how to respond to challenges, must begin long before anything erupts.

In order to be ready for any emergency, boards must invite area specialists to review the company’s economic stability, information technology risks, potential for corporate buyout offers, culture, and human resources health, among other challenges, for diagnosing potential weak spots in the corporate management philosophy and posture. We also advocate regular exercises on potential crisis hotspots to keep everyone ready, willing, and able to get their hands dirty when a crisis emerges.

CACI International, like so many businesses around the world, is laser-focused on successfully managing its response to the COVID-19 pandemic. The CACI board of directors and management, in coordination with other defense and aerospace firms, have and will continue to engage the executive and legislative branches of the US government as it responds to the pandemic. The goal of these engagements is to inform and influence executive and congressional actions in response to the crisis to ensure that the critical national security work of the defense industry continues without disruption.

Warren R. Phillips is lead director on CACI’s board, and Daniel P. Walsh is senior vice president and strategic advisor at CACI.


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