What is a Board Crisis Plan?

If you are sitting on a board of directors, does your board know the difference between a “emergency plan” and a “crisis plan?”

An emergency plan is the information about immediate response; the phone numbers to call if there is an accident, the phone numbers of the lawyers, the phone numbers of the police and fire department, the phone numbers of your applicable regulatory agencies, the phone numbers of your PR people and insurance people,  and your key employees and your directors.  The emergency plan tells you who does, and who does not, speak to the press.  The emergency event is of short duration, and management needs  to coordinate the moving parts in order to get through it.

A crisis is more enduring.  A crisis is the fall-out, the follow-on of an emergency.  Has the crisis physically destroyed your company or an important part of it?  Has it cut off a vital source of supply?  Has it materially undermined the reputation of your company?  Has it knocked the dickens out of your stock price?  Has it attracted litigation from shareholders, claiming that directors and management should have been attentive enough to avoid the emergency, and the ensuing crisis, in the first place?

The proper role of the board of directors, if faced with a corporate crisis, was the subject of discussion at the March 12th breakfast meeting of the National Association of Corporate Directors/New England.  The panel, consisting of three directors and a crisis management consultant, generated several useful takeaways for the board:

  • A crisis needs to be worked through step by step and may last a long time; this is the job of management;
  • Although boards of directors sometimes include a lot of “type A personalities” who want to “do something,” the rule for good directorship remains: in most instances, it is “eyes in/hands out;”
  • The role of the board of directors is to make sure that a company’s management has an emergency plan and has a crisis plan;
  • It may be appropriate to test the plans by role play, or to have them evaluated by a third party;
  • The crisis plan should have instructions for the board, including identification of roles, handling of press and other inquiries, centralized control of the flow of information, and understanding of what may happen in case of shareholder litigation or whistle-blowers;
  • The plan should provide for robust protections for personal electronic devices of directors and key people, as an ongoing crisis invites hackers to attempt to break into the information flow;
  • The plan should identify pre-established relationships with law firms having both civil defense and criminal law capacity (“in the middle of a crisis is no time to go looking for your lawyer”);
  • The plan should address the situation wherein the CEO or other key members of management are themselves the cause of the crisis; who steps up and takes what role, and does the board at that point become more proactive?
  • Speaking of lawyers, there is danger in having a lawyer be your corporate spokesperson in a crisis; it may undermine the legal communication privilege between management and counsel, and additionally the various stake-holders (employees, shareholders, investors, the community) want to hear directly from the CEO and not from an intermediary;
  • Although this may be difficult to achieve, another role of the board is to make sure that the executive staff is competent to act in crisis mode (not just in the role of building a business in normal times);
  • However, one director observed that crisis may bring out the best and the worst in people, and it is very hard to know who will rally, and who will not rally, in the face of corporate adversity.

It was also noted that emergency planning and crisis planning may not be favored by boards; the risks appear remote, it is a discussion of negative contingencies which occupies time and burns money and does not build the business, and there is pressure these days for robust enterprise risk management (designed to eliminate the emergency which gives rise to a crisis in the first instance).

Discussion touched upon a wide variety of emergencies creating a crisis for a company: explosion of a manufacturing facility, materially adverse press coverage, violation of laws including the Foreign Corrupt Practices Act, personal impropriety by the CEO just to name a few.

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