The Fault Lines – Don’t Ignore Them!

A serious crisis can sometimes strain the Board Room relationships to beyond breaking point.

Introduction

I imagine that by now everyone is aware that a crisis can happen at just about any time, they’re an ever-present threat to all organisations of all sizes. A crisis can emerge from out of the blue, escalate in a matter of hours and threaten the very viability of an organisation. The result, issues spiral out of control, reputations shatter, trust lost and organisational value decimated.

Less considered (if at all) is the very significant emotional cost in terms of stressed relationships between the CEO/MD, the SMT and other Directors. In short a crisis can end a career. Allowing such stresses to go unchecked will impair the organisations ability to emerge in strength out it and return to a path of profitable growth.

The New Normal

In real terms a major organisational threatening crisis is a very low-probability event but with high-impact consequences threatening the viability of the organisation. Whether the crisis is a result of a sudden and unexpected change in the organisational environment, or a serious case of misconduct coming to light, or a slow-burn situation that’s escalated beyond the point of no return, a crisis creates a ‘moment of truth‘ for the organisation.

The nature of contemporary business makes a crisis event more likely and more prone to escalation. The heightened interconnectedness of organisations and supply-chains and the requirement for speed of delivery means a crisis can be reflected more widely than just the affected organisation alone. Just as the customer relationships are changing from B2B or B2C to now include B2M(achine) and M2M and M2B and M2C, so is the effective spread of the crisis. In other words machine learning (Artificial Intelligence – AI) will only serve to either learn to avoid the risk and so isolate the affected organisation or spread the risk rapidly depending on the extent of the learning.

The Fault Lines

Fault-Line 1: Over-reliance on the CEO or SMT

Organisations typically find it difficult to challenge the CEO and SMT more generally. The line is too difficult to cross for those who feel they would be going beyond their mandated role.

Challenging discussions are a necessary part of good corporate governance. A failure to encourage and hold such candid conversations and make them the norm leaves those in overall control complicit in making very poor judgement calls and less able to make objective decisions when a crisis does arrive.

Fault-Line 2: Micromanagement by the Board

When executives seek to make a direct impact in the management process, a reversion to the “muscle memory” of their prior positions, or simply because they don’t have an appreciation of respective roles and responsibilities.

In a crisis executives must retain the right to step in and guide the organisation but they must hold-back if in reality the management team is capable of responding to the crisis. Where executives are overly intrusive of good management teams it creates confusion about how a crisis can and should be managed. Who in fact is going to run the organisation in a crisis and when will it be handed back? are the two foremost questions. And then there is the issue of shattered trust!

Fault Line 3: Problematic Dynamics

A crisis will never help to resolve dysfunction in the SMT, it will only ever drive a wedge deep into any gaps there may be. All too often no time is given to addressing these underlying issues before a crisis comes along.

If there are preexisting tensions, it will be much more difficult to reach a successful outcome in the event of a crisis. Directors come into Board from differing backgrounds, (they are not all made at central casting as some employees may believe), they arrive with their own values, behaviours and ambitions. Where Boards meet infrequently or don’t discuss regularly the overall business environment, what customers and suppliers and other interested parties may want from the organisation then where a tension surfaces this may be fatal to the whole organisation.

A strong leader of the board, either an independent chair or an independently minded CEO/MD is indispensable in these situations. Their role? To facilitate the right kind of dynamics within the SMT.

Fault Line 4: Ineffective Information Flows

Determining the extent, frequency and volume of information flows is the job of the SMT, and this can prove challenging in calm times, never-mind in the eye of a storm. During a crisis its extremely difficult for the management to fix the problem and at the same time communicate to those that need to know what the play is.

Inconsistency will creep in, which where there are preexisting issues things can get chaotic, leading to a drop or complete loss of trust. The result, the organisation pulls apart and blame becomes the order of the day. Eventually as the crisis unfolds the organisation goes into a death-spiral.

The Tough Calls

  1. In an organisation where several negative events have happened, should the organisation pivot into ‘crisis management mode’ now or later?
  2. If establishing your organisation needs to respond to a crisis is the right call, who’s going to lead the team?
  3. What level of authority should be given to the crisis management team to ensure the right balance is struck between speed of response and oversight?
  4. Do we publicly support the crisis management team and endorse its response to the crises?
  5. Is a change to the executive team needed?
  6. Does the organisation need to hire an additional, independent member to help the organisation respond and recover?
  7. What immediate shifts within the executive team do we need to make to ensure good governance?
  8. Is the boards composition right?
  9. Should the board have an independent investigation into the cause?
  10. Does the board need to establish guiding principles that will ensure the organisations response and recovery is inline with organisational objectives?

Remedies

  1. Establish shared expectations about roles to be played out in the event of a crisis
  2. Make the role of the leader of the crisis management team absolutely crystal clear to all concerned, including the leader of the team
  3. Hardwire information flows into the board activities before, during and following a crisis
  4. Conduct regular and frequent self-assessments of how well equipped the organisation is to respond to a crisis

Conclusion

Healthy boardroom dynamics are critical to ensuring an organisation can effectively respond and recover from a crisis. Such corporate crisis are becoming more frequent and more intense posing unprecedented levels of risk to organisations viability.

Boards and SMT’s must approach preparing for a coming crisis proactively. They should go beyond the traditional crisis management playbook and simulation exercises by becoming open and being honest about capabilities and what they are going to do to address any fault lines in the dynamics.

Philip Dawson MBA | Strategy Consultant | Trainer | Systems Thinker

Reference: Are you prepared for a corporate crisis? – Sanjay Kalavar and Mihir Mysore

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.