Crisis prevention and readiness

Crisis prevention and readiness have taken on greater urgency for management and boards as corporate crises—frequently self-inflicted—continue to make headlines. One question that quickly takes center stage, particularly if warning signs went unheeded, corporate culture was the culprit, or the company’s response was seen as inadequate: Where was the board? Could the board have done more to help prevent the crisis, mitigate the impact, or improve the response?

To be sure, the increasing likelihood of externally triggered crises occurring—cyberattack, natural disaster, terrorist act, supply chain failure—should be prompting a hard look at crisis readiness and response plans: Where is the company vulnerable? What is the crisis response plan—and has it been practiced? How well-prepared is the company? Does management have the resources, skills, and plan to handle a major crisis? What is our plan if the CEO is unavailable or otherwise disqualified?

But perhaps more concerning is the deep and long-lasting reputational impact of self-inflicted crises—product quality, worker safety, sexual harassment, unethical sales practices, legal/regulatory compliance—that have also put a brighter spotlight on crisis prevention. How effective are the company’s crisis-prevention efforts, particularly given the speed that news (accurate or inaccurate) travels globally, as well as high stakeholder expectations for companies to “do the right thing”?

The starting point is to make sure the fundamentals—culture, tone at the top, ethics and compliance program, whistle-blower hotline, employee training, and a robust risk management process—are in place, visible, and working. The directors and business leaders we interviewed also emphasized important lessons and steps to consider for mitigating risk and being prepared for a crisis:

• Make it safe for people to do the right thing 
• Monitor culture and incentives enterprise-wide, with healthy skepticism
• Calibrate board/committee processes and communications for a better line of sight
• Have a crisis response plan in place—and practice it
• When a crisis does occur, be transparent, accountable, and clear about who is calling the shots
  

In connection with crisis prevention and readiness, of course, the board and management have related duties but separate roles. Boards should not usurp management’s role (assuming no extreme circumstances); yet, the recent corporate crises create an imperative that boards reassess their level of engagement in this critical area.