The Board’s Responsibility for Crisis Governance
76 Pages Posted: 28 Jun 2015 Last revised: 8 Sep 2017
Date Written: June 26, 2015
A clear strategy and implementation plan for reasonably foreseeable industry disasters--- before they take place, helps to prevent mistakes made under conditions of severe stress. Survival-threatening disasters such as the BP Gulf of Mexico oil spill or natural disasters such as hurricanes, fires, or the March 11, 2011 Japanese earthquake and tsunami, constitute any board’s worse nightmare. I have attempted to draw upon lessons from each of these disasters and explore how they may be applied more generally across all industries when crisis strikes. While effective risk management is perhaps the topic highest on every board's agenda, it is imperative that thought be given to crisis management and what a board might expect to confront when a corporate disaster strikes.
This paper proceeds as follows. First, a few thoughts about contemporary threats are offered. Second, is an examination of the board of director’s responsibility in crisis. Third, is a discussion of the necessity of commitment at the top of every enterprise if progress is to be made toward crisis preparation, mitigation, and response. Fourth, an examination of several major corporate disasters is presented: the Japanese earthquake and tsunami of 2011; Deepwater Horizon drilling rig debacle; and General Motors ignition switch crisis. Fifth, a framework for analysis is offered, followed by some thoughts about what to do when crisis hits. Sixth, I discuss what to do in those situations where management is implicated, use of special committees of the board, and emergence of the role for special counsel. Workplace and data security issues are then discussed with emphasis on Toyota’s 2010 social media recall strategy, and the Target, Sony, and U.S. Office of Personnel Management data breaches. Next, the following enterprise nightmare scenarios are presented: supply chain disruptions; Foreign Corrupt Practices Act (FCPA) violations; internet failure, or data loss from virus or hacker attack; nationalization of assets; natural disasters; adverse political developments; pandemics such as the 2014-15 ebola scare; prolonged power disruption; strikes and labor actions; and war. Succession planning is the next topic discussed having corporate crisis implications. And last, I conclude.
Keywords: Audit Committee, Barra, BP, Continuity, Corporate Governance, Crisis, Culture, Data Breach, Deepwater Horizon, Duty of Care, Good Faith, General Motors, Leadership, Regulatory Failure, Risk, Sony, Succession, Target, Toyota, Tsunami, Valukas
JEL Classification: D21, D23, D81, G30, G38, H11, H56, I18, K20, K22, K32, L20, L21, L50, L71, M14, O13, Q48
Suggested Citation: Suggested Citation