Corporate Governance in Crisis
How is the board ideally supposed to react in a bad crisis? Good corporate governance is equal to scanning the challenges of tomorrow. While owners create possibilities, the board should navigate the future and the management create the results. Future-driven corporate governance is therefore founded on a systemic process in close connection with ownership.
The offset for good corporate governance
Timely information about the company's progress.
Continuous communication between the management and the board (WhatsApp groups are great for this purpose).
A documented onward strategy, goals, choices, and an action plan.
Scenarios for different outcomes and a list of adequate reactions as part of the annual plan.
A good team spirit and a big “We” that stands for the owners, the board, and the management - all heading in the same direction.
On the other hand; a board that’s designed to merely report, look backwards, act distant, and seldom meet up, is pretty much worthless in a crisis. When the shit has hit the fan, and there’s no real responsiveness, the owners and the management are on their own in the eye of the storm.
However, in the end, it is the owners who failed to build themselves a productive board, which is why they have to bear the consequences.
How does the board act in a crisis?
When crisis hits the board, it becomes a task for the management to form a team that prioritizes to secure the personnel’s well-being and the business responsiveness in all situations. In cooperation, the board and the management will create a situation room that helps personnel recognize changes, make quick decisions, and utilize opportunities that are born out of the situation.
In the situation room, the board and the management team will together have to
take all necessary action to secure the continuity of business.
discuss the situation and draft potential future scenarios.
start enough projects and form enough teams to 1) clean-up 2) lead operation 3) utilize the new potential born out of the crisis. Fast results require the right amount of skill and experts.
create a Plan B for operations, just in case the crisis hits the business harder than expected.
take care of the board’s and personnel’s motivation, well-being, and resources.
Companies that haven’t utilized the potential of a good board, a systemic process, and the concept of a situation room will remain on top of the blank when a crisis hits. It becomes difficult for such companies to react to a crisis when operations, processes, and communication strategies haven’t been rehearsed in advance. Despite the challenges, a crisis can present huge unseen potential, perhaps the most unused potential [LS1] in the modern day. Hard times require the right people in action.
It’s quite clear that it’s easy for companies to succeed during a boom and an upswing of the market. In contrast, you have to work much harder to achieve the same results during a recession. In times of pressure, flexibility, speed, and ability to react will give birth to something new and become success factors. In light of all of this, it’s fair to conclude that a wise owner will make sure they equip their company with the best possible board.
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