Dr. Earl R. Smith II
Managing Partner, The Federal Circle
DrSmith@Dr-Smith.com
Dr-Smith.com
One of the areas that I work with boards on is crisis management. Boards have a responsibility to develop and promulgate plans to mitigate the risks of crises developing. They also need to develop and put in place protocols for managing crises when they occur. This responsibility arises because of the board’s fiduciary responsibility to the shareholders.
Risk assessment is something we all do everyday. Corporate boards and corporate management must conduct risk assessments in their functions as the guardians of the corporation and stockholder’s investment. In strategic planning, many organizations conduct a S.W.O.T. analysis and assign a committee to assess the threats to the organization’s mission.
A risk management committee must ask very basic questions including:
- What can go wrong
- How will we react
- How will be pay for it
- Who will lead
When asking what can go wrong, risk management committee members are asking very broad open questions. In a sense, committee members need to be constantly are asking themselves what they do not know. Many risk management committees employ insurance companies and risk management companies for assistance in evaluating their corporate model. Many insurance companies and risk management companies specialize in industrial insurance. Industrial Insurers have very specialized tables that define the expected mishaps and base their insurance rates on these tables. Corporate boards can hire external insurance advisers to assist the company in eliminating the risks and establishing corporate strategies to minimize accidents and costs.
Corporate boards will engage an advisory board to conduct random assessments of corporate management’s compliance with board safety strategies. Advisory boards can consist of members of the board, members of corporate management and even non-employee advisers or stakeholders. The board addresses issues at the end of the assessment. Management needs to be involved in this process. The board then reports to the CEO and board of directors. Non-management employees should understand that the strategy is not just to save money on accidents and lost production time, but also to get each employee home safely each day.
Corporate boards should also instruct the risk management committee to develop policies to guide people during an accident. The committee should establish a protocol to follow during a crisis on issues such as:
- Who to call
- What order to make calls
- What to document
- How to follow up
Boards want the facts, and CEO’s wants information immediately. Depending on corporate communication lines and the type of accident, certain individuals may need a call first. Of course, any emergency requires a call to the proper local authorities. Once the immediate emergency is handled, the issue then becomes a matter of determining exactly what happened and how to prevent a similar situation in the future. Most companies will want to route all media inquiries through the public relations office. This person will often be seen as the leader of the crisis management effort even if someone else is actually leading from behind the scenes. However, a senior manager may need to respond on a local level to provide a level of comfort and transparency to the crisis. How a corporation chooses to handle public relations depends on the board’s leadership style. No one way will work for every company, but every member of the company, especially the management team, needs to understand the policy and adhere to it. No CEO wants to have a situation where different issues regarding an incident are released to the media.
Risk management committees should also assess the corporation’s leadership development programs. A crisis demands strong leadership on the scene and in the boardroom. The CEO must provide direction for the company to find its way out of the crisis and back to normal operations. Local corporate management must provide immediate leadership to handle the emergency. Often times the first few minutes of a crisis will determine the ultimate outcome and corporate expense.
The risk management committee must also determine how to pay for the likely crisis situations they believe will happen somewhere across the corporation. The corporate board should be advised on the findings of the risk management committee, and the board should work to minimize the risks identified.
If you want to learn more about my board management services, send me an e-mail and we will arrange a time to talk.
© Dr. Earl R. Smith II
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- Good Governance – Strategic Positioning for Strategic Planning
- Governance and Risk Management Strategic Plans
- Corporate Risk Management
- Corporate Board Dangers
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One Response to “Governing in a Crisis”
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I think that it is clear that the role of GRC in today’s business environment is increasing dramatically. In times of economic uncertainty the need for crisis management is extreme. My company uses BPM software to map out crisis management in different scenarios. We are able to visually map and orchestrate the necessary steps taken during a crisis in order to alleviate it.
Specifically, I work with a product called the Enterprise Process Center. The EPC has a number of modules that allow for crisis management. There is a risk management module which allows you to visualize risks within processes and mitigate those risks by implementing controls on user activities. In addition, simulation functions allow you to simulate potential changes to processes before they are implemented – a cost saving measure.
Crisis managment is an issue that will continue to become a prominent discussion point in businesses around the world. Governments today use BPM software for crisis management, so why shouldn’t companies? I suggest taking a look at the site, it’s at least useful to read up on the latest software available.