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Posted: January 17, 2012

Board leadership for companies in crisis

Five questions will tell if your board is engaged

Taylor Simonton

A crisis can quickly turn into a disaster if a company is unable to respond properly.

According to National Association of Corporate Directors (NACD) Director Handbook Series (www.NACDonline.org), Board Leadership for the Company in Crisis, co-authored by Suzanne Hopgood and Michael W. Tankersley, "Early-stage and financially stressed companies often exist in a state of continuous crisis. Mature, well-managed companies may experience crisis only rarely.

"But no one escapes entirely. The leaders of successful companies, and those that have merely managed to survive, always carry with them stories of crises averted or overcome. The vast majority of the failures-the companies pushed into distress sales, bankruptcy, or irrelevance-have been brought down by crises that overwhelmed their ability to gather sound information, plan and respond."

The board of directors is responsible for assuring that the company's management has a sound crisis plan. The Colorado Chapter of NACD sponsored a Director Roundtable on "Board Leadership for Companies in Crisis," which Suzanne moderated. Our Roundtable discussed actions of successful boards of directors in thinking through crisis response in advance, identifying steps to take when faced with a crisis and ensuring critical elements are in place at the board level to deal with a crisis.

Suzanne shared her views in an interview on the five questions which framed our Roundtable discussions:

How do I, as a director, think about a crisis in advance?

The steps to crisis planning start with identifying the risks that can destroy the company. Those risks might include product malfunctions, plant explosions, shareholder activism, inadequate human and financial resources, supply chain failures, risks stemming for a bad culture and government investigations. These many risks suggest that the board of directors should be involved in understanding exactly what risks would endanger the company's survival or long-term success.

What are the key steps in crisis planning?

The first steps involve developing a team and a 24/7 contact list. Secondly, work through the list of risks identified to be certain that it is complete. Lastly, discuss ways to mitigate as many risks as possible. Identifying risks and discussing mitigation of risks create a better understanding of a risk/reward relationship.

Conducting a practice drill involving the participants verifies the responsibilities of each participant and makes it a working plan. When a crisis first appears, the information represents only the tip of the iceberg and there is far more not yet revealed than is presented. Assuming that you already know the worst will lead to bad decisions. What you do not know is likely to be far worse.

What are the first questions in a crisis?

The most important question for a board of directors to determine immediately is whether the CEO and/or CFO are part of the problem or part of the solution. If they are part of the problem, the board may have to step in to assume leadership or communications roles. A spokesperson and a crisis leader, not necessarily the Chair or Lead Director, should already be identified as a person with experience and who is prepared to take charge. The next question is who in the organization has the necessary critical information. Then, who is in charge of communications and how quickly can you issue the first information?

How are communications handled?

In a crisis, the communications person should be sitting at the table with the lawyers, board of directors, CEO and other key participants in resolving the crisis. While the lawyers are focused on limiting the company's liability, the public relations/communication function is to preserve the company's reputation. A well thought out communications strategy is critical. A variety of messages should already be created and ready to send. Maintain a website which is "dark" but ready to use to deliver messages.

The spokesperson for the company should have completed media training. If the crisis attracts national or international interest (such as with explosion, environmental disaster, major product recall, etc.), the spokesperson, who should be the CEO or board representative, needs to convey leadership, confidence and sincerity.

Is there a team?

Having the right people on the team, being able to communicate immediately and having a crisis plan whereby each team member knows what their overall responsibilities are is critical to a successful result. Team members may include the senior management team, a member of the board of directors, external audit partner, outside counsel, public relations firm, criminal defense counsel, bankruptcy counsel, investment banker, etc. While this list may seem extensive and unnecessary, imagine trying to Google "criminal defense lawyer" when the U.S. Attorney is already in your office with a subpoena. Recognizing and using board members' specific skills is critical. Many companies weather serious crises that no one ever knows about because of their successful crisis plan execution.

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Taylor Simonton, CPA, is a Director and Past Chairman of the Colorado Chapter of National Association of Corporate Directors (NACD) and is a retired PwC LLP National Office SEC Partner, who is serving or has served on the board of directors of six Colorado companies, usually as audit committee chair. NACD is the recognized authority focused on advancing exemplary board leadership and establishing leading boardroom practices. With more than 15,000 corporate director members, NACD provides world-class director education programs, national peer exchange forums, and proprietary research to promote director professionalism. Contact Taylor about NACD and its Colorado programs at tsimonton@NACD-Colorado.org or www.linkedin.com/in/taylorsimonton.

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