board meeting doing video calls

Directors can begin by following plans that have been drawn up in advance, however, this current crisis is not routine. It is ruled by new levels of unfamiliarity, uncertainty and global interconnection. Being smart is necessary but not sufficient to deal effectively with this level of complexity. What leaders need during this crisis may not be about reliance on a predefined response plan but behaviours and mindsets that will prevent them from overreacting to each day’s developments and help them to look ahead.

Directors and executives who are highly competent with a fixed view of their tasks and responsibilities may need to adopt new mindsets. Directors who perceive their role as monitoring, overseeing risk, compliance and managing stakeholders may find their view of these tasks being tested along with their own personal resilience.

Crisis is not the right time to discover disharmony. When the job suddenly expands far beyond regular reporting and board meetings, cracks in the dynamics among board members and with management are going to become very visible and very costly. Existing tensions within the board and the management team, behaviours that may have previously seemed tolerable may cause relationships to break down resulting in paralysis in decision making and possibly serious missteps.1 The scale and speed of the unfolding levels of disruption and uncertainty give rise to feelings of disorientation, losing control, and strong emotional upheaval.2 This can prevent both directors and executives from seeing clearly and making wise decisions. Knowing and agreeing on what to do is fundamental to performance and will be more difficult and more critical than knowing how to do things.

The following are four behaviours, and accompanying mindsets, that can build productive group dynamics and help directors navigate the current pandemic and future crises.

1. Proactivity

Boards need to rebalance their roles and determine the scope of board involvement in agreement with the CEO and senior team.

Immediacy is in, ‘noses in, fingers out’ is definitely out. Each board must find its own new balance with management on levels of oversight and participation. The full board needs to be engaged. Focus on the big picture. Ensure management has the resources needed to respond. Some actions might need to be improvised and those actions might span a wide range of situations: not just temporary moves – for example, instituting work-from-home policies – but also adjustments to ongoing business practices such as the adoption of new tools to aid collaboration, which can be beneficial to maintain even after the crisis has passed.3

The CEO and board need to decide where operational issues end and a corporate governance in the crisis begins. Of course, sometimes the difference between these situations isn’t so clear. One can become the other quite quickly. The first category is usually the domain of management and the people who report to them, for example supply chain delays that are now impacting daily business. In contrast, the current pandemic involves the company’s very existence for some, and it may be up to the board to take on planning for the continuity of the company in this case.

The relationship between operational crisis responses and crisis governance takes its cues from the relationship between the board and the CEO. The board should assess the lines of authority and make sure the plans for action and decision approval in a crisis state, versus a steady state, corresponds to them. Some CEOs will look to the board during major threat events. Others may risk feeling micromanaged. To avoid misunderstandings about decision rights, it is important to have regular, honest discussions about who expects what from whom. Accountability must be clear and made by appropriate individuals at either board or management level so that it is clear to the network of teams in the business how they themselves should operate. In crisis situations, the board’s instinct might be to consolidate decision-making authority and control information, providing it on a strictly need-to-know basis. Doing the opposite will encourage teams to follow suit.

In meeting and rebounding from the crisis, the board isn’t just in oversight mode. Its members have a direct responsibility to anticipate threats and make quick, far-reaching decisions. That may include adding people to the crisis management team who excel in specific roles like health, safety, finance, corporate affairs, or specific industry issues. It may include arranging for external advice, or deciding who to include in sensitive external and internal communications and whether to alert employees. The board’s role at a time like this may even have to include replacing the CEO on short notice – or stepping in to act in that capacity for a time if the CEO or a director becomes ill.

Boards should consider tasking a specific committee with the responsibility of developing and running crisis response scenarios and simulations. The governance or risk committees may be well- suited for this role. Whatever committee is selected, this group of directors should be tasked with working with management to ensure that each individual who has a role in the crisis management plan is comfortable with that role. One valuable skill a board member may bring to a crisis is having been through one before. Whether the crisis ended well or poorly, whether the person in question earned the credit or bore the blame, firsthand experience can be worth more than knowledge. It also instils confidence under pressure. It’s true that crisis experience may not be at the top of the checklist when boards recruit new members, however experience is good training and a valuable quality when putting together crisis response scenarios.

2. Communication 4

The board should oversee the company’s communication strategy. Clear communication and planning within the crisis response team will allow the company to communicate internally and externally in a calm and thoughtful manner, which will help build confidence in a volatile situation. Having clear reporting lines and communication channels in place helps to eliminate ambiguous or conflicting messages which will avoid creating confusion and more stress. If possible, assign issues to only one director or executive for reporting as more chains of command usually increase the risk of delayed or inconsistent communication. Make sure procedures to communicate with management are uncomplicated as possible. Communication with management should strike a balance between the need to stay adequately informed and provide advice and support to management, and the need to avoid distracting management.

3. Clarity

Create clarity through alignment on priorities. A small group of executives at an organisation’s highest level cannot collect information or make decisions quickly enough to respond effectively. Directors and management can better mobilise their organisation by setting clear priorities for the response and empowering others to discover and implement solutions that serve those priorities. Focus on empowering the right people. Decide where authority is to be granted without having to seek approval that delays a proper response.

Avoid assigning roles that conflict with existing job responsibilities and accountability. Increasing demands is an easy way to create more tension among executives and directors.

An effective crisis management team should provide assurance and demonstrate critical thinking capabilities by:

  • identifying the facts;
  • identifying what is unknown;
  • understanding the impacts across the organisation;
  • considering most likely outcomes and worst-case scenarios;
  • identifying key stakeholders impacted; and
  • developing and communicating their plan

This process will often take place with incomplete information and under immense time pressure. The crisis management team will ideally focus on managing the incident rather than managing the board requirements. However, one of the key activities of the crisis management team chair is to provide situational awareness to the board through regular and effective briefings, enabling the board members to support the crisis management team to maintain shareholder, regulator and community confidence.

To ensure that the strategic objectives of the organisation are met, the board may be called on to:

  • Become a ‘sounding board’ to the crisis management team for significant strategic decisions that need to be made. This may be crucial to the effectiveness of the crisis management team, depending on the size, complexity and scale of the impact of the crisis on the business.
  • Endorse the key strategic decisions and actions of the CEO and crisis management team and provide board level oversight regarding these key decisions.
  • Liaise with key external stakeholders including the regulators, shareholders and the media, only as agreed upon by the crisis management team.

4. Confidence

Executives need to be confident in their ability to take on the crisis. They need to be encouraged to talk to directors about their concerns and difficulties as the crisis unfolds. A crucial part of each director’s role, especially in the emotional, tense environment that characterizes a crisis, is to promote psychological safety so people can openly discuss ideas, questions, and concerns without fear of repercussions. This allows the CEO, the crisis management team and the network of teams across the business to make sense of the situation, and how to handle it, through healthy debate.

Psychological safety is the shared belief among members of a team, a group, a board, that it is safe to take interpersonal risks in group conversations. There are social risks associated with behaviours such as challenging a view, problem, asking for help, or admitting an error. Some examples are the risk of:

  • looking incompetent;
  • looking ignorant;
  • being seen as intrusive; and
  • being seen as negative.

Psychological safety is positively associated with participative leadership, acknowledgment of fallibility, and levels of familiarity and interaction among group members. Managing social risks at the board level is never more important than during a crisis. To do it well requires inclusive leadership from the chair, directors who can admit mistakes, and relationship building among directors and the senior team who are work more closely together during a crisis than would during more normal times.

In summary, adopt confidence-building practices that allow:

  • performance of roles within an environment of psychological safety;
  • leadership and mentoring, with enthusiasm and clarity;
  • encouragement of team play and collaboration; and
  • authenticity.

Questions for directors to ask themselves

When rebalancing from a role of oversight to one of leadership where the crisis has a direct impact on the chief executive and their leadership team:

  1. Are any members of the crisis management team implicated or impacted by the crisis?
  2. Does the crisis management team have the skills and capability required to respond to this event?
  3. How psychologically safe is it for management to voice their concerns to the board?
  4. Does the crisis management team need additional support?
  5. What decision authority should the crisis response team have in order to balance speed with oversight?
  6. Does the board need to communicate the guiding principles that will provide clarity for decision making during the organisation’s response and recovery?
  7. Have our guiding principles balanced the needs of stakeholders and shareholders?
  8. Are we speaking with one voice? Does the impact of our communications match the intent? For staff, customers, suppliers, creditors and shareholders?
  9. Are we enabling management and adding value or getting in the way?
  10. How can the individual skills of directors be harnessed to assist the CEO and crisis management team?

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Footnotes

1 L Liu, R Bew and F van der Oord, 2019, Building board-management dynamics to withstand a crisis: Addressing the faulty lines, September, McKinsey & Company and the National Association of Corporate Directors, https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Risk/Our%20Insights/Building%20board%20management
%20dynamics%20to%20withstand%20a%20crisis%20Addressing%20the%20fault%20lines/Building-board-management-dynamics-to-withstand-a-crisis-Addressing-the-fault-lines.ashx, (accessed 25 March 2020).

2 J A Clair, C M Pearson, 1998, “Reframing crisis management”, Academy of Management Review, Vol 23, No 1, pp 59-76, Academy of Management, https://journals.aom.org/doi/10.5465/amr.1998.192960, (accessed 25 March 2020).

3 Australian Institute of Company Directors, “Are you prepared for a crisis?” [course notes], Company Directors Course Specialisation: The Board’s Role in Crisis Management, p 10.

4 Refer to AICD Director Tool COVID-19: Effective internal and external communication

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About the author

Melinda Muth FAICD is an educator and consultant who specialises in decision making and group effectiveness, principally with senior executives and leadership teams. She combines her practical and academic experience to help individuals and teams to innovate, solve problems, and take action.

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The Australian Institute of Company Directors (AICD) is committed to strengthening society through world-class governance. We aim to be the independent and trusted voice of governance, building the capability of a community of leaders for the benefit of society. Our membership includes directors and senior leaders from business, government and the not-for-profit sectors.

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Disclaimer

This document is part of a Director Tool series prepared by the Australian Institute of Company Directors. This series has been designed to provide general background information and as a starting point for undertaking a board-related activity. It is not designed to replace a detailed review of the subject matter. The material in this document does not constitute legal, accounting or other professional advice. While reasonable care has been taken in its preparation, the Australian Institute of Company Directors does not make any express or implied representations or warranties as to the completeness, currency, reliability or accuracy of the material in this document. This document should not be used or relied upon as a substitute for professional advice or as a basis for formulating business decisions. To the extent permitted by law, the Australian Institute of Company Directors excludes all liability for any loss or damage arising out of the use of the material in this document. Any links to third-party websites are provided for convenience only and do not represent endorsement, sponsorship or approval of those third parties, or any products and/or services offered by third parties, or any comment on the accuracy or currency of the information included in third party websites. The opinions of those quoted do not necessarily represent the view of the Australian Institute of Company Directors.

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