Last year was a year when many directors really had to earn their keep because, according to Deloitte, the qualities needed to manage a crisis are different to those needed for business-as-usual. This is largely because of the uncertainty and it’s easy to forget how overwhelming this was a year ago. Questions abounded like: how serious is Covid-19 likely to be? Then: how long will the lockdown last? And: how will the pandemic change customer behaviour, business models and competition?
Behind closed doors
As the scale of the pandemic began to dawn on directors and executives, they had to decide whether changes would be temporary or permanent, and what their company had to do to adapt. They’re used to making complex decisions, but the need to act fast and be decisive intensified the pressure, which was hardly helped by the knowledge that a wrong call could have disastrous consequences – for the company, its employees, its customers, its suppliers and other stakeholders, including its shareholders. The big unknowns required sometimes heroic assumptions to be made and, for many, things were looking pretty bleak. For others, surges in demand and sudden shifts in behaviours brought their own challenges that demanded speedy responses.
As ever, what really mattered was effective leadership. The necessary fast decisions hinged on far more limited information than normal. Kieran Moynihan, the managing partner of Board Excellence, a consultancy that helps directors improve their board’s effectiveness and performance, recently highlighted what went on behind closed doors in boardrooms. He blogged that: “In some cases, while not ideal, chief executives and their teams were heavily relying on gut instinct in terms of picking from what appeared to be radically different options.”
And many struggled. During the pandemic, he spotted how the best non-executive directors came into their own. In many companies, those with deep expertise in specific areas were drafted in to help the top team deal “not only with firefighting of immediate short-term crises but also with helping to formulate key aspects of the crisis management plan”. They helped resist “betting-the-farm type decisions”, and he makes the point that several also spent time in providing personal support to chief executives to enable them to “hold everything together and keep functioning through non-stop 16-hour days”.
Shareholders have to rely on chairs and non-executive directors to counterbalance chief executives and their teams. In theory, at least, these directors are critical friends: not afraid to ask hard questions. Mr Moynihan said that in those crucial days of pandemic firefighting, some he knew identified additional options (or variations of options) that had not occurred to the executive team. To be effective, that required them to prepare thoroughly for board meetings. It’s often assumed that non-executive directors’ fees are for participating in maybe a dozen meetings each year, but the preparation demanded, especially during the pandemic crisis, takes up much more time than this.
Human nature
Dr Kevin Dutton, author of The Wisdom of Psychopaths, has identified a trait that the best business leaders share with surgeons and others in high-pressure situations: most people struggle to function as effectively when exposed to intense stress. Their thinking processes clog. But the most effective chief executives exhibit the opposite motor responses. Their pulses slow, enabling them to think and act more clearly. Faced with a crisis, people react differently. Mr Moynihan points out that company boards are no different. They can be galvanised and gel together like never before, or they can split into different camps bickering over irreconcilable differences of opinion.
Deciding what needs to be done is only the first stage. Deloitte says the next step is to delegate this action plan into objectives for each part of the business, a process that includes identifying the best person to manage each section and to be held accountable for the outcome. Existing employees might have the right experience and skills, and/or some external expertise might need to be drafted in. And good communication can’t be stressed enough: leaders need to inspire everyone to make it all happen. Here, as the Big Brother of George Orwell cynically exploited in 1984, human nature helps out again: when we face massive common dangers, our natural tendency is to pull together, as many employees demonstrated last year.
This will have been the first major crisis that the current cohort of company directors have had to face, but it won’t be the last. A new mutation, a worse virus, anti-bacterial resistance, or a collapse of the environment are all potential risks of arguably low immediate but increasing likelihoods, any of which could have devastating long-term consequences. Companies could describe, as part of their environmental, social and governance (ESG) responsibilities in their annual reports this year how executives, employees and stakeholders coped, the personal toll taken on them and what lessons they’ve learned. One thing’s for sure: companies need robust crisis management plans. Having the right people in the right place matters, and that includes non-executive directors as well as those running the company day-to-day.
