Crisis Preparedness: Next Competitive Advantage

With number of crises is on the rise, it is crucial for organizations to be ready to respond with agility to multiple scenarios that have been tested well at the field level and hence, promoters are increasingly looking for independent directors who have dealt with unprecedented situations and who also can challenge conventional thinking...

The current pandemic, which has challenged businesses like never before, has also got them thinking about the quality of their board of directors.  Although the process of examining value-addition by independent directors had started some time earlier, it is only now, since the pandemic, that it is being accelerated. It is understood that in some cases, with valuable suggestions not always forthcoming from board members, CEOs have been all at sea in these unprecedented times.  The pandemic has taken board members of several companies by surprise leading to lack of appropriate guidance to CEO by board members. Several promoters do not see much value addition from board members in this turbulent time. Several others are considering positioning internal talent as directors on the board rather than looking for external members to fill in the vacancies. Companies are increasingly looking to bring on board people who can be an adviser to the CEO. It is because not many board members may have the experience of dealing with a COVID like pandemic. Today promoters are increasingly looking for independent directors who have dealt with crisis/change management/turnaround scenario/ unprecedented situations and who also can challenge conventional thinking. "An independent director must be willing to challenge managerial proposals and ask the critical questions that nobody else is asking"-said recently by a CEO of a fortune five hundred company. The independent board's role of being a devil's advocate can be challenging. In the words of Peter Drucker "if everyone agrees with a decision without challenge, it probably is the wrong decision".

Moving forward, within next three to six months, one could expect far more professionals being inducted on boards who can help organisations grow in these turbulent times. Previously organisations would only look for independent directors who would not ask any uncomfortable questions. Today, conversations with CEOs reveal that they are looking for those who can help the business grow. There has been a strong focus towards (inducting) independent directors as companies are seeing the value of independent directors being more objective, and there is a serious capability matching. For many, it's about not knowing how to anticipate and take advantage of any disruptions to the status quo. In most cases, companies lack the internal talent within the board members to make what feels like seismic shifts in focus, because they've hired executives to meet the needs of their current reality. Those who can't answer the question "what's next?" often find themselves stalling, hoping that clarity will miraculously show up like a sign from heaven. To quote former New York City mayor Rudy Giuliani, "…hope is not a strategy." One frequently overlooked means of preparing for the future is through a high-performing, strategically-focused board team members. Most companies don't utilize a true-functioning board team beyond the minimum statutory requirements, and those that do have a functioning board team often lack directors whose competencies and experiences are well-aligned to anticipate and execute on potential future opportunities. In both instances, the business lacks the right people in the right place to see beyond the day to day and craft a winning vision of the future.

However, there are boards that effectively demonstrate their depth of knowledge and experience. In these companies, the level of engagement between directors, the chairman, CEO and other CXOs increased dramatically during last four months. They are engaging themselves in multiple one-on-one, small group and several committee conversations in addition to board meetings. Any new idea or proposals are discussed openly among the board members. Several such members are of the opinion that "what determines such active engagement levels is the DNA of the board, which is not built over-night".

Crises don't discriminate and can threaten the existence of the organization if not contained in time. They come in all shapes and sizes and no one is immune. Crises that have occurred in the past and affect us today may not necessarily exist in the future, and those that are expected to hit in the future don't seem to be triggers in the present. Traditionally, Leaders seem to be looking at the 'known unknowns'. While their prediction of future crises is based on their current and past experiences, the real threat to their existence could come from anywhere – that is, the 'unknown unknowns'. Only those organizations that regularly test their crisis response plan and train themselves on it will become crisis resilient in the future. History suggests that, smart business leaders invest in crisis management capabilities. They know that these capabilities can help their organizations avoid costly, and sometimes irreparable, damage to finances, employee morale, brand, and reputation. Truly effective crisis management goes beyond being reactive and simply protecting existing business value. It also enables resilience and powers future business performance, thereby enabling an organization to emerge stronger, fitter and better. Today, crises are becoming more intense as the world becomes more dynamic. Any event can turn a simple situation into a massive one. And crises aren't always "big bangs" or immediately visible. For example, many cases of financial fraud and other forms of corruption may simmer under the radar for sometime before boiling over.

Organizations that are adept at crisis management take a systematic approach to mitigating potential crises and managing those that do arise with a focus on both preserving and enhancing business value. The process is facilitated in a sensing capability that continually assesses internal and external data for signals of change in the company's environment. When such signals appear, these organizations know how to address the situation in a way that prevents an incident from escalating into a crisis. In today's society and economy, this know-how can be crucial to seizing a competitive advantage. Successful leaders believe that leadership and direction are the two most important capabilities for managing companies through the crisis. Leadership, so that leaders inspire others and shape their actions, and direction, so that it's clear where companies are going and that people are aligned on how to get there. Another important leadership behaviour for today's context—challenging assumptions and encouraging risk taking and creativity. Though monitoring financial performance is crucial in a crisis, leaders should place a higher priority on motivating employees during crisis. Moreover, focus on the big picture, can be insufficient for motivating middle managers and others when they are grappling with new responsibilities and downsizing programs in an atmosphere of great uncertainty. In addition, undergoing a crisis facilitates organizations to prioritize detecting and preventing crises in addition to managing them. Further, leaders having high level of empathy displaying their full capabilities under the high pressures of a crisis situation can support effective decision-making and communication when they are most needed. With number of crises is on the rise, it is crucial for organizations to be ready to respond with agility to multiple scenarios that have been tested well at the field level. Equally vital is to understand that many crises can be avoided in the first place, allowing organizations to focus on core business performance and growth. Perhaps most important of all, there is a dramatic difference in outcomes when senior management and board members are involved demonstrating the urgent need for organizational leaders to proactively plan and prepare for crises; to contribute to risk management plans; and to take part in crisis simulations and exercises. All of these can substantially improve an organization's ability to not merely manage, but also take advantage of the power of a potential storm. There is a famous saying, "Pressure makes diamonds. It can also make a puddle of mush. The difference is how well we adapt to crisis leadership versus leadership in good times".

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