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QUESTION 3: Are We Prepared to Do Our Job Well When a Crisis Erupts?

By John Pearson

The Board’s Role With Unknowable Unknowns

Wow! Question 3 is way too timely! In this 14-part series from the must-read governance book, Owning Up (read my review), Ram Charan says there are two kinds of crises:
• Crisis #1: The Knowable Unknowns
• Crisis #2: The Unknowable Unknowns

He elaborates on these two types: “…those that are knowable, meaning they happen from time to time but at unpredictable intervals and with varying ferocity, and those that are unknowable, meaning no one has even imagined such an event.”

QUESTION 3 of 14: Are We Prepared to Do Our Job Well When a Crisis Erupts?
Owning Up: The 14 Questions Every Board Member Needs to Ask ()

Whether COVID-19 was predictable or not, Ram Charan says “Boards have to prepare for both the knowable unknowns and the unknowable ones in order to minimize disruption to the [organization], damage to the brand and [organization] reputation, and loss of hard cash.”

A plethora of experts and not-so-expert prognosticators are weighing in on Zoom webinars, white papers, and memes—and often (my opinion) giving inappropriate directions for the foggy journey ahead. The good news: CEOs and board members can pick their flavor-of-the-week expert and find agreement for their own opinions. The bad news: CEOs and board members can pick their flavor-of-the-week expert and find agreement for their own opinions.

Reminder: “In their hearts, humans plan their course,
but the Lord establishes their steps.” (Proverbs 16:9, NIV)

Charan’s crisis wisdom is worth reading:

#1. Benchmark Crisis Practices. It’s never too late to get ready for the next crisis. For the knowable unknowns: “They should not be a complete surprise, and some expertise will exist somewhere to deal with them. Boards need to benchmark these practices as a preparedness measure.”

#2. Address Internally Inflicted Situations. Some crisis situations are, sadly, created by management (hasty hires, overly optimistic cash flow forecasts, revenue bucket imbalances, inadequate or no customer research, etc.). Boards can also stumble and create or exacerbate problems. “Every board needs to decide which categories are important enough to prepare for ahead of time.” How? See the next point.

#3. Establish a Crisis Committee. Charan writes that boards must ensure that management has “a core group that forms a crisis committee comprising the CEO, general counsel, CFO, and a public relations and communications officer.” He adds, “In each case, there must be a point person in charge and a game plan that can be deployed instantly.”

#4. Rehearse! Rehearse! Rehearse! It’s too late to “rehearse” for the front end of COVID-19. But it’s not too late to be prepared for the next knowable unknown crisis. Charan recommends that boards prepare “a list of advisors or experts available to the board 24/7 and keeping contact information current can save valuable time in the heat of the moment. Rehearsing a crisis can test how well the mechanisms and processes are working.”

The Board’s Role With Unknowable Unknowns

I urge your CEO and board chair to read chapter 3—even in the midst of the current unknowable unknown crisis. Charan advises, “Here the board can be an important check on management’s interpretation of events because even the best CEOs can sometimes be too optimistic or have blind spots.”

As your board members pray daily (we hope) about Plan B or Plan C, heed these insights from the author:
• “The board should also help management imagine what the domino effect might be, projecting what other problems might arise as the one thing triggers something else.”
“Waiting for management to make a move is a mistake. Management, after all, has never been tested under the conditions of an unknowable unknown, and the board cannot assume they know how to respond.”

BOARD DISCUSSION: In chapter 3, Ram Charan cites a board that met six times in two months during a crisis. Is your board meeting at appropriate intervals during this COVID-19 unknowable unknown?

MORE RESOURCES: Check out these helpful ECFA resources:

BLOG: Click here to read the guest blog by David Wills from Lesson 19 in Lessons From the Nonprofit Boardroom, “Never Throw Red Meat on the Board Table. Boards need advance preparation to fully address complex issues.” (Click here to read the chapter online.) Wills notes, “The currency of great boards is great discernment.”

• TOOL: The book, Owning Up, is featured in Tool #13, “Board Retreat Read-and-Reflect Worksheets,” from the book, ECFA Tools and Templates for Effective Board Governance: Time-Saving Solutions for Your Board. Click here for the color commentary on Tool #13.

 

 

This article was originally posted on the “Governance of Christ-Centered Organizations” blog, hosted by ECFA.
John Pearson, a board governance consultant and author, was ECFA’s governance blogger from 2011 to 2020.
© 2021, ECFA and John Pearson. All rights reserved.

 


This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

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