Sunday, April 14, 2024
CEOWORLD magazine - Latest - CEO Insider - Crisis Management – The Board Of Directors Role

CEO Insider

Crisis Management – The Board Of Directors Role

The board of directors provides leadership, guidance, and governance to companies and non-profits. The CEO or Executive Director leads the organization and manages day to day operations.

In a moment of crisis such as the extreme challenges facing organizations word wide during the COVID-19 pandemic, the role of the board and its relationship with the leadership of the organization must change. My article entitled Crisis Leadership During COVID-19 outlined leadership principles during a time of crisis – manage the process and communicate hope. (Link)

This article addresses the board’s role during a crisis:

  • What issues must the board address?
  • How does the board’s role change during a crisis?
  • How does the board’s relationship with management change?

At companies such as the Cheesecake Factory, Delta Airlines, or AMC Theaters, operations are essentially closed. These companies are just is trying to survive. At Domino’s Pizza, Zoom Video, or Gilead Sciences, product demand is exploding. Demands facing company leaders and the board will be different, but the leadership challenges will be similar.

Issues the Board Must Address

Safety of the employees and survival of the business are the top board priorities. These issues cannot wait until the next scheduled board meeting. The board must set expectations and communicate simply and clearly with the CEO.

Issues the board must address include:

  •  Safety of all employees
  • Understanding what is happening
  • Establishing a view about what will happen
  • Not running out of cash
  • Immediate possible termination of employees
  • Future customer demand and revenue projections
  • Operational disruptions
  • Supply chain security
  • Messaging to staff, customers, and suppliers
  • Financial reports and disclosures

The board is not operating the company. But the board is responsible for asking the right questions and establishing or helping establish priorities. 

The Role of the Board of Directors in a Crisis

The board represents shareholders and the overall interests of the organization. The board brings these interests and viewpoints to management of the crisis. During normal times, the board of directors takes a longer term view of the company’s leadership, strategy, business model, financial goals, and relations with owners and regulators. Avoiding a big mistake and managing risk are important roles.

In a crisis, the threats are immediate, and the specifics of the challenge are unclear or unknown. The board must guide and approve immediate next steps to protect the company and the staff. The board of a company owning restaurants must decide this week or TODAY whether to lay off employees. Board engagement must be immediate. And the board must stay engaged as required by the crisis.

Some hospitals and other healthcare providers are overwhelmed by demand and others are laying off staff because they are non-essential, or patients are afraid to come to their facilities. Does the surge in demand for a company’s products today justify expanding capacity if the new demand will evaporate in a year? Will weaker competitors not survive the crisis and be open to acquisition? The board must form a judgement in real time about the opportunities and threats facing the company.

Risk tolerance must change in a major crisis. Boards are usually risk averse. At a time when much of what you think you know is wrong and early decisions will often be wrong, boards cannot wait for clarity and certainty. Make the decisions that must be made. Learn more. Adjust and make the next important decision.

The board’s role as coach to the CEO is more important. Decisions the CEO most make in a crisis can be personally difficult and the CEO may not have been through a crisis of this magnitude. Fear and uncertainty are pervasive. Staff important to the company and with strong personal relationships to the CEO may have to be terminated. The board can help the CEO find the path forward and take the difficult steps required for the welfare of the company.

The Board’s Relationship With Management During a Crisis

The relationship between the board of directors and the CEO is some combination of:

  • Coach and athlete
  • Lender and borrower
  • Consultant and client
  • Boss and employee

The CEO is hired and fired by some boards. At other organizations, board members serve at the pleasure of the CEO or company owner. It’s complicated.

Engaged and decisive leadership is essential in a crisis. That leadership can only come from the CEO. The CEO leads and manages the company. The company cannot be successful without a successful CEO. The CEO will be more successful with a strong and collaborative board. Acting through the Board Chair, if that is not the CEO, or the lead independent director, the board can be an advisor, coach, and resource.

In a crisis, the board must be available for immediate decisions and help but must also stay out of management’s way. The board has separation from the immediate demands on the CEO as a leader and a person. The board can clarify the issues and set priorities. Management may be thinking one or two days ahead. The board can be thinking one or two months ahead.

The relationship between the board and management must be actively managed both by the board and management. Coordination, communication, and trust are essential. The board will want more communication, but board demands for communication cannot interfere with the operations of the organization. In a crisis, clarify and simplify the lines of communication between the board and management. Who is speaking on behalf of the board on what topics. And who should be the management point of contact.

The board has important responsibilities during a crisis requiring strong leadership. Someone must be the board leader. That individual must have the time and focus for leading the board. The board leader must engage the board with its responsibilities and manage the board’s activities. The board leader must also be the principle communication link between the board and management.

If the board chair is also the CEO of the company, as happens for some private companies, the CEO may not have time to lead the board and lead the company. Board members have a fiduciary responsibility to represent all shareholders. But board members representing a major investor, such as a VC firm, are conflicted between the expectations of their fund and the overall needs of the company. Again, it’s complicated. An independent director may need to be board chair during the crisis even it that is not the business as usual practice. Engaged board leadership is essential in a crisis.

At moments of crisis, some leaders will rise to the challenge and some will be controlled by fear and uncertainty. Human qualities of courage, creativity, determination, and compassion will guide those companies and organizations that survive and succeed.

Written by Rick Williams. Here’s what you’ve missed?
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CEOWORLD magazine - Latest - CEO Insider - Crisis Management – The Board Of Directors Role
Rick Williams
Rick Williams is an experienced corporate leader, management consultant, company founder, board member, and speaker. His board of directors' service builds on his belief that boards can be accelerators for their company. His new book, Create The Future: Powerful Decision-Making Tools For Your Company And Yourself, will be released in Fall 2024.

Rick Williams is an Executive Council member at the CEOWORLD magazine. You can follow him on LinkedIn, for more information, visit the author’s website CLICK HERE.