As more and more Americans get vaccinated against COVID-19, a return to normalcy in life and business may finally be on the horizon. That makes it a good time for corporate directors to reflect on the lessons they’ve learned. Was the board prepared to meet the challenges that this crisis presented? Is it ready for the next one?
As they consider these questions, directors may wish to think about it from the perspective of the C-suite. It’s sobering. When PwC surveyed executives about the effectiveness of their board’s crisis management oversight, many executives said it wasn’t up to snuff. Just 37% of respondents said their directors’ crisis expertise was good or excellent. And when asked about the board’s grasp of their own company’s crisis plan, only 57% said they thought the board understood it very or somewhat well. Of the 10 areas in which we asked executives to assess directors’ knowledge, that was the lowest.
Asked what vulnerabilities the COVID-19 pandemic exposed at their companies, executives cited crisis management more often than anything else. At a time when every company was facing a crisis, and executives recognized that their own plans were flawed, effective board oversight was more important than ever. Too often, directors weren’t in a position to effectively provide it.
It may be tempting to write off the past year as a uniquely challenging one in which nobody performed perfectly. That would be a mistake. After all, while this exact crisis won't repeat itself, another, different one will inevitably strike in the future. That’s what makes them so difficult to navigate.
These bracing results should be a wake-up call for corporate boards. Now is the time for directors to take a close look at how well their boards performed in this crisis and whether they are prepared for the next one. To better rise to future challenges, directors can think about how to provide effective oversight through three phases of a crisis: before it strikes, while it is going on, and after it passes.
The worst time to ask yourself what your company intends to do in a crisis is after the crisis hits. Yet some boards undoubtedly found themselves in that position in 2020. According to PwC’s 2020 Annual Corporate Directors Survey, just 37% of respondents said they fully understood their company’s crisis plan. Making sure the plan is thorough should be a regular practice for the board.
Working with management to set clear expectations about when a situation should be escalated to the board is another helpful step to take before crisis strikes. Likewise, directors can improve their oversight by asking executives to provide updates on how the plan fared in any crisis simulations or other tests.
Communication is crucial during a crisis. For the board, that means not just how the company addresses key stakeholders like employees, shareholders, and regulators—though that is very important. Directors also need clear, frequent communication with their management teams to stay up to date.
Even though crises can seem all-consuming, it’s vital not to lose focus on everything else. By continuing to provide effective oversight of any unaffected operations and keeping an eye out for knock-on effects that could cause trouble down the road, boards can provide a steady hand in uncertain times.
Once the crisis has passed, it’s time to look at its root causes and assess the quality of the company’s response. Boards shouldn’t be shy about taking a close look at their own performance in addition to management’s. Were directors engaged, did they receive the information they needed, and provide feedback to management? Was oversight adequate? When the post mortem is complete, boards should work with management to make any necessary changes to the plan.
Effective governance provides a strong foundation when a crisis hits. And effective governance is what executives want. When asked if boards should be more or less willing to challenge management on a variety of topics, nearly half (48%) of executives we surveyed said directors should be more willing to challenge management on crisis preparedness. That was higher than any other area. Now is the perfect time for directors to take a more proactive role.