crisis

A director’s perspective

Sara Watts FAICD is a non executive director of Uniting, Trajan Scientific and Medical, Syrah Resources and LiteracyPlanet. She is also chair of the audit and risk committees at both Trajan Scientific and Syrah Resources.

“I sit on boards in several sectors, yet there are common themes in how each is dealing with this extended crisis. Heightened vigilance of staff and executive wellbeing, both physical and mental, includes evaluating the impact of a(nother) fast pivot back to remote working and schooling, front- line worker resilience and, recently, the provision of food and essentials to COVID-19-positive or quarantined staff in Sydney.

Each organisation has moved to balance cash preservation activity with targeted investment in strategic initiatives. The enhanced risks of remote working bring greater scrutiny of internal controls and cybersecurity as part of boards’ oversight activities.

At a practical level, the mechanics of board meetings have changed to include additional short breaks to combat remote meeting fatigue. We’ve altered meeting times so that international directors don’t always work overnight, but there are fewer opportunities to informally discuss an issue or share and shape perspectives.

Each board is acutely aware of the compounding effect of lost opportunity and is working hard to ensure that we are operating sustainably today while being strategically positioned for the ‘post- crisis’ future.”

Quantifying the damage

Major Australian listed companies that experience a reputation crisis lose an average of $1b in market capitalisation, and suffer a 30 per cent drop in earnings per share, according to Crises Value Erosion research by UTS for SenateSHJ. The study also found share prices took eight months to a year to recover and, in some cases, had still not returned to pre-crisis levels several years later. “It’s quite extraordinary that we now have verifiable measures that can articulate the loss caused by poor management of a crisis on the balance sheet,” says Whitlam. “Almost without exception, the companies that recovered quickest were the ones that handled the crisis best.”

The COVID-19 pandemic has proven to be the ultimate global crisis, with lockdowns across several Australian states for much of the past 18 months. Has this extraordinary, ongoing event modified the conventional wisdom on crisis management, and do the fundamentals still hold true?

“I don’t think we’ve had a crisis of this magnitude since World War II,” says Luis Garcia MAICD, CEO of Cannings Strategic Communications. “The COVID-19 pandemic has been very painful and hugely destructive and it has occurred over an extended period of time. In many countries, including Australia, the social and economic impacts are still being felt 18 months after the pandemic began. That’s the big difference, where most crises are short, sharp and painful, this one is long- running. It therefore requires a different approach — and very clear and consistent messages.”

Fundamentals hold true

Every crisis is unique, but the response must always begin with addressing the pain points, says Peter Wilkinson GAICD, managing director of Wilkinson Group, which specialises in crisis public relations, and also chair of corporate affairs agency Wilkinson Butler. He believes “honesty, early” still holds true and that transparency must be paramount. “A convincing spokesperson is critical to mitigate the loss of trust,” he says. “The pain is often from the media, but with a COVID-19 outbreak in an aged care facility, it includes family members and distressed staff, plus an anxious minister for health. In a financial collapse, it’s investors; and with sex abuse, it is internal relations.

Once the initial crisis has passed, the next step is to fix the root cause. That often occurs at the board or executive level, says Wilkinson. “Most crises are avoidable, so if there hasn’t been a change at the top, it’s probably past due.” He points to recent incidents at Parliament House in Canberra that revealed a systemic cultural issue. In a company, it would be a cultural issue within the board. Once the root cause has been addressed, it is time to begin the long process of repairing the damaged reputation.

Managing long-term vs short-term crises

“When it comes to a crisis, we often talk about the three Rs: regret, reassurance and redemption,” says Garcia. “In this case, it’s much more about reassurance and recovery, because redemption is still a long time away. It’s amazing we’ve got, in effect, the CEO of NSW and the chair of Victoria facing the public every day via the media. That’s quite unusual. Anyone who’s had to face a media scrum, let alone a daily one, will confirm it isn’t an easy thing to do.”

Big shifts in crisis management

“Social media and the excellence of Australian investigative journalism are the change drivers,” says Wilkinson. “That puts pressure on directors and executives. There is reduced tolerance for poor spokespeople who can’t speak to stakeholders in their language. The expectation on the spokesperson is to be understood, not interpreted. In the corporate world these days, directors and executives, must be understood.”

Corporate reputation is being recognised by the vast majority of organisations as a primary asset, says Anna Whitlam GAICD, MD of corporate affairs executive recruitment firm Anna Whitlam People. However, she cites studies showing the majority of senior executives consider reputation as harder to manage than any other form of risk. It is getting more difficult, as a result of the increasingly important trends of ESG and the need for a “social licence” to operate.

“If we can learn anything from some of the high- profile corporate reputational crises of recent years, it is that a company’s response to a crisis has more impact on an organisation’s value than the crisis itself,” says Whitlam. “Today’s stakeholders expect brave leadership, humility and integrity from corporations. The shared tragedies and challenges of the past 18 months have intensified this focus.”

Global response

During the pandemic, several crisis communications trends have surfaced that offer relevant lessons for directors to apply to their own organisation’s situation.

Recognise what you’re dealing with

Stanford University research evaluating the effectiveness of Taiwan’s initial COVID-19 crisis communications found the government was able to draw on its 2003 SARS outbreak experience to act immediately. “Well-trained and experienced teams of officials were quick to recognise the crisis and activated emergency management structures to address the emerging outbreak,” researchers found. “Through early recognition of the crisis, daily briefings to the public and simple health messaging, the government was able to reassure the public by delivering timely, accurate and transparent information regarding the evolving epidemic.”

Rally the home team

Deconstructing the discursive strategies in Austria, Germany, France, Hungary and Sweden, research uncovered a patriotic thread. Examples included Austrian chancellor Sebastian Kurz’s repeated references to “Team Austria’’. According to a study by Lancaster and Vienna Universities, civic nationalism formed a critical part of “legitimising restrictive measures in order to cope with the COVID-19 pandemic where everybody is in danger of falling ill, regardless of their status, position, education and so forth”.

The McKinsey & Co report, A leader’s guide: Communicating with teams, stakeholders, and communities during COVID-19, dives deeper into why this approach is so common, explaining building “a common social identity and a sense of belonging based on shared values, norms, and habits” is critical during a crisis.

“Research suggests that social bonds grow stronger during times of great uncertainty. Leaders encourage people to come together under common values of mutual support and achievement,” the report finds.

Be transparent

However, McKinsey also warns that unfounded optimism can backfire, noting how in 1990, during the UK’s mad cow disease crisis, a government minister fed his daughter a hamburger in front of TV cameras and declared British beef had never been safer, despite contradictory evidence. “Rather than boost morale, this effort only further eroded public trust in the government’s response.”

Transparency trumps all, the guide finds. “Research shows that transparent operations improve perceptions of trust and that communicators perceived to have good intentions are more likely to be trusted, even if their decisions ultimately turn out to be wrong.”

The report draws on examples including the Canadian and Netherlands governments, where officials published extended protective measure timelines well in advance of their execution. “Give people a behind-the-scenes view of the different options you are considering,” the McKinsey report advises.

What can boards rethink?

“A big no-no is directors thinking they can wing it. There are simply too many unknowns where past crisis experience is invaluable,” says Wilkinson. “It can’t be learned from a book and it’s not always common sense.”

Boards have long had to be accountable to regulators and their shareholders — and nothing has changed in that regard, believes Garcia. However, boards must now also be accountable to external stakeholders — whether media, politicians, community groups or environmental activists. “In the past decade, business leaders — chairs, directors, CEOs — have come under increasing public, political and media scrutiny,” he says. “Nowadays, for example, chairs and CEOs of all the major banks and insurance companies are regularly called to give evidence before parliamentary inquiries. It’s a different ballgame, and what it means is, as a director or CEO, you have to be able to demonstrate the values your company subscribes to. It cannot be a hollow promise.”

“In the past, the function of communications was viewed as a tactical output — which hung off the decisions made around the executive or boardroom table,” says Whitlam. “Today, activist investors and keyboard warriors can take down a company’s reputation quicker than you can say ‘scandal’ — and drag the share price with it.” She believes the role of the corporate affairs function needs to be part of key business decisions and should participate in discussions around the long-term sustainability and reputation of an organisation.