man standing in front of two paths diverging in the woods
PHOTO: Vladislav Babienko

Boards, like all of us, were overwhelmed by the scale of and demand for quick decisions which the COVID-19 crisis necessitated. This premise guides an interesting article on the London Stock Exchange page: "Optimizing Board Decision-Making in the Eye of a Storm." Kieran Moynihan, an advisor for boards and directors in the UK, wrote the piece.

Risk and audit professionals need to think about what their customers need and how that is changing in these dynamic and turbulent times. They should consider whether there is a need to change one or more of:

  • What they are addressing.
  • When and how often it is being addressed.
  • The time it takes to do that.
  • How the results of their work are communicated, including the speed of that communication.

Boards Response to Crisis (But Where Is Executive Management?)

Moynihan references a director who is on “an experienced board with battle-hardened veterans in both the ranks of the executive and non-executive directors.” Even so, “he indicated that the board and executive team seriously struggled with the enormity of the challenges facing the organization.”

He continues: "While he indicated that the board were quite mature in terms of risk management and business continuity planning, the sheer scale of the COVID-19 crisis literally floored the board both in terms of the scale of business impact, the impact on their employees and currently how difficult it is to plan for the 'new normal.' The scale of the crisis necessitated a number of major decisions to be made in a very compressed timeframe."

While the board may consider themselves “quite mature in terms of risk management,” that is questionable — but a topic for another day.

Here are some notable points with my comments: "While a board has many broad types of responsibilities, the fundamental responsibility of a board is to make major decisions. At a time of extreme crisis management, this acute responsibility comes to the fore and represents a fundamental test of a board of directors in terms of its calibre, decisiveness, effectiveness, judgement and performance."

I would argue that what is even more critical is the ability of the executive management team to make quality decisions at speed and communicate those decisions effectively. In addition, there needs to be an agreement between the board and the executive team (including the CAE and CRO) on what will be shared with the board, how, and when. The practitioner needs to be alert, communicate issues in this area, and offer constructive suggestions for improvement.

Moynihan continues, "The brutal reality of the COVID-19 crisis is that major decisions have had to be made and continue to be made by boards in compressed timeframes of days and in extreme cases hours that have very serious consequences for the organization, its employees, its customers and shareholder/stakeholders. While in many cases, government and public health regulations dictated timeframes for major decisions, the reality is that in the vast majority of cases, boards are having to get used to extremely short review cycles for what are often complex choices with significant consequences for each option."

Again, this applies to the management team as well. Do they have the capacity to make informed and intelligent decisions at speed? Do they know when they have to make decisions? Do they have the agility and flexibility to make decisions, or is there too much red tape?

The article goes on to state, "The quality of information is the life-blood of a board in terms of major decision making in normal times. At severe crisis management times like this, it is very challenging for the CEO and executive team to devote the usual time needed to develop comprehensive board packs when in some cases you may have just 24 hours before the next virtual board meeting. In these cases, I believe quality is more important than quantity in terms of helping the board understand the logic behind major proposals from the CEO and executive team. In some cases, while not ideal, CEOs and executive teams are heavily relying on gut instinct in terms of picking from what appears to be radically different options. In these cases, it is important to provide the NEDs with your “gut instincts” and assessment of the pros/cons of each major option."

In times like these, any risk practitioner needs to ensure that any identification or assessment of what might happen (which could be adverse, risk, or favorable, opportunity) is performed at an appropriate frequency and speed.

Moynihan's mention of "gut instinct" brings up the issue of cognitive bias, as well as the fact that many decision-makers don’t know what information is available that would be of value, let alone what information can be made available. One thought is to examine the agility of any IT function in providing decision-makers with the information they need, when they need it.

"It is vital that where needed, a board gets external expertise to help with a major decision. This might be an experienced existing advisor partner who understands the organization and sector but also may be a truly independent sector expert who could provide a brutally cold objective assessment of the options that could ultimately improve the final decision-making process."

This is where the practitioner can help. I prefer management and the board to use internal resources like internal audit before even thinking of going outside to an organization that doesn’t have much of an understanding of the company and its operations.

Related Article: A Board That Would Fail Any Test of Its Governance Practices

Changing Landscape for Boards

The overall message is that the way in which the board and executive management teams have to operate to thrive in today’s environment is changing. The members of the board, the management team, and both internal audit and risk practitioners need to ensure they can and have changed as well.

I welcome your thoughts.

Related Article: Bringing Diversity and Inclusion Into the Board of Directors