Board Leadership and Performance in a Crisis

Board Composition and SuccessionBoard and CEO AdvisoryBoard Director and Chair SearchBoard Effectiveness
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February 25, 2022
4 min read
Board Composition and SuccessionBoard and CEO AdvisoryBoard Director and Chair SearchBoard Effectiveness
Executive Summary
Boards should focus on elevating communications and ensuring they balance crisis management with a focus on the long-term.
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Republished by Harvard Law School Forum on Corporate Governance.



During the early weeks of the COVID-19 pandemic, we spoke to seasoned board directors and retired CEOs with a track record of navigating crises to identify a set of crisis management lessons for boards. As organizations are now faced with a new geopolitical crisis following Russia’s invasion of Ukraine, many of these crisis management recommendations for boards remain relevant.

This article begins with a short overview of the specific issues that organizations will need to grapple within the coming days and weeks. While the relevance and impact of these issues will vary by company and industry, few organizations are likely to be insulated from the effects of this invasion.

Crisis Management Recommendations for Board Leaders

 

Critical Issues for Management

While the economic consequences of this invasion are far secondary to the human toll, analysts have identified multiple factors that will strain the global economy. Europe’s reliance on Russia for natural gas will push energy prices even higher, while modelling by Capital Economics puts the worst-case scenario for oil prices at $120-140 per barrel.1 Commodity prices are also likely to rise. Russia and Ukraine account for one third of the world’s wheat exports and one fifth of its corn trade. Both countries are also key players in the production of metals such as nickel, copper, and iron. Disruption to trade routes--including rail links from China and shipping in the Black Sea--is also a cause for concern.2

Leaders will need to manage across a range of issues, including:

  • Employee safety and wellbeing: The immediate focus will be the safety of employees and their families in the region. Longer-term, organizations should plan for the potential impact of further inflation, especially for their lowest-paid workers.

  • Supply chain disruptions:  The Covid-19 pandemic revealed the fragility of global supply chains. Organizations will need to move quickly to understand their dependence on raw materials from the region, as well as the cascading effects of rising energy prices.

  • Sanctions and business exposure to the region: As the sanctions against Russia evolve, organizations will be tested by monitoring and understanding how the sanctions vary across countries.  More broadly, even where business is not directly affected by sanctions, leaders will have choices to make about the risks associated with continuing to do business in the region.

  • Cybersecurity: Organizations will need to ensure that they are well-positioned to protect their digital infrastructure. While experts believe that direct cyberattacks on companies outside Ukraine are unlikely, the risk of contagion is real. Organizations that interact with companies or institutions in Ukraine could be vulnerable to collateral damage (as happened in 2017 with the NotPetya malware attack).3

 

Crisis Management Recommendations for Board Leaders

Board directors of organizations for whom the situation in Ukraine poses a significant threat—either through direct exposure to the region, or via disruption of energy, financial markets, or supply chains—should heed the following recommendations for effective crisis management.

 


 

01 Elevate Communication And Engagement - While Minimizing Distractions

Establish clear communication channels and a predictable communication cadence

A crisis response mandates frequent and transparent communications to all stakeholders. For boards in particular, the three most important communication channels are (1) between the CEO and the chairman, (2) between the CEO and the full board, and (3) between the chairman and the board. When done right, communication alleviates stress, serves as an outlet for new ideas, and enhances information flow without overburdening executive teams. Each needs a well thought out process and regular cadence. For companies significantly affected, weekly (or even more frequent) calls between the CEO and Chair will be necessary; for others, an update on impacts at the next regularly scheduled Board meeting may be sufficient. The CEO should also openly share reports on key performance indicators with the board, without feeling the need to refine or add commentary so as not to generate extra work.

Curb – and channel – your enthusiasm 

Chairs need to manage and temper well-intentioned directors who are eager to assist management, as their involvement may overwhelm an already-crowded effort and bog down management teams with distracting requests. As one director put it, “it’s not helpful if too many helpful people are trying to be helpful.” Chairs in some cases may play the role of traffic cop, striking the right balance between keeping the board informed while also giving the management team clear guidance and room to operate.

Step up, don't overstep 

Under normal circumstances, the line between governance and management is usually clearly defined and understood, but in a crisis, boards are challenged with toeing an ever-moving line. The board’s role should always be to support management in the right way, at the right time, without trying to manage the company. In key moments, the board may have to get more involved than normal, but most of the time the most impactful role it can play is to ask the right questions and to test management’s assumptions, while being careful to frame this challenge with an appreciation for and encouragement of a hard-pressed management team. Chairs who understand how to find the right balance between giving advice and asking questions, even when tensions are high, will lead a more effective board.

 


 

02 Don't Lose Sight of The Long Term or Indulge Wishful Thinking

Challenge the optimism of your worst-case scenario

The board needs to push management to look at the true worst-case possibility. Optimism bias is real and needs to be checked. Scenario planning by executives is often too rosy, based on the worst that has ever happened in the past, not the worst that could happen in the future. Management then needs to plan for those unprecedented scenarios and work backward to more likely events. Complacency will stifle progress. It is important to maintain momentum throughout a recovery period that may linger far longer than expected, and which may involve new risks you didn’t anticipate at the start.

Plan for permanent changes

Prepare to challenge management’s thinking about how the crisis has fundamentally shifted business operations and which changes will permanently impact the company’s strategic direction. Boards must grapple with how to adapt to a new environment and what these changes mean for legacy businesses and even cultural behavior that may have been long protected. Consider which aspects of the business should remain the same, which will briefly change, and which have been permanently disrupted – including consumer behaviors, public expectations, supply chains, and operating models. Boards should also ensure that management establishes mechanisms that capture enduring lessons from this crisis to help make the organization more robust going forward.

Elevate the post-recovery narrative

While a crisis rightly drives an emphasis on solving urgent problems, it is equally critical for the board to maintain a forward-looking agenda and keep focused on the long term. The board is most impactful when serving as a thought-partner to management, reminding them of the importance of staying close to key customers and clients, and helping them think through what the business and customer franchise ought to be going forward. Prioritize discussions that contribute to the company’s recovery narrative, seize opportunities to better meet stakeholder needs, and remind executives that putting people before profit typically pays off in the end.

Avoid prematurely assuming the crisis is over

Even if it appears that the waters have calmed, the crisis is likely not over. It is important that neither directors nor executives get a false sense of security as soon as indicators start pointing in the right direction. There are often aftershocks to a crisis, key companies that fail to recover along with the rest of an industry, and customers who permanently change their behavior. Directors need to keep everyone focused on performance and outcomes throughout and long after the crisis appears to be over.

 


 

03 Do Not Neglect Culture, Behaviors and Leadership

Live your values and set the tone

Boards will be defined by how well they set the organizational tone during the crisis, and how well they model that tone themselves. Embodying aspirational values will inspire others and instill confidence in the company. Boards that act fast to reinforce a strong, compassionate, and positive culture with both internal and external stakeholders stand to benefit the most post-crisis. Additionally, it is important to remember that a board living the company’s values will help set the tone for corporate culture. Employees, customers, and communities will make judgments based in part on how the board behaves.

Closely manage and monitor board culture and behaviors

Crises and stress inevitably amplify behaviors for better and worse. Directors are tested in new ways, and their engagement with each other sets the tone for how effective the board will be. In particular, chairs need to step up their efforts to ensure the board’s culture and behaviors create the right atmosphere to guide and advise the management team. While they must manage their own tendencies, chairs should also pay attention to how other directors perform when times are tough. Who is demonstrating courage, poise, independence, and integrity? This moment will reveal the strength of the board’s roster.

Take note of what this moment reveals about leadership teams and succession pipelines

During times of tremendous pressure, the board will see which executive leaders rise to meet new challenges and inspire confidence – and which do not. Take note of what this reveals about the management team and, as critically, what it says about the internal succession pipeline. Look at the experience that was missing from the team, as well as the behaviors and leadership qualities that were or were not displayed. During a crisis, boards have a unique opportunity to sharpen their understanding of who their leaders truly are, and how they should adjust both short and long-term succession plans.

Remember that the “soft stuff” matters more in hard environments

Don’t underestimate the power of saying “thank you” and asking specifically about how the leadership team, their partners and immediate families are holding up. Small words or gestures have a big impact on a management team that is working hard to protect and resurrect the business. Remember to express gratitude and celebrate small wins along the road to recovery. These actions will help reinvigorate a fatigued team, keep them energized for what’s next, and move them to express similar concern for customers and colleagues.

 


 

Sources

1 How will Russia’s invasion of Ukraine hit the global economy? | Financial Times (ft.com)
2 Russia attack on Ukraine set to hit global food supply chains | Financial Times (ft.com), Five essential commodities that will be hit by war in Ukraine (theconversation.com)
3 What the Threat of Cyberwar Means for Americans - The Atlantic