The Novel Coronavirus Requires Classic Crisis Management
From its rapid and stealthy spread to the dramatic quarantine responses it has provoked, nearly everything about COVID-19 feels unprecedented. Yet in many ways, COVID-19 represents the quintessential crisis. It has incredible uncertainty and disruption, coupled with the need to manage employee emotions, investor confidence, logistics, supply chain, technology and countless other aspects of the business. All of this has to happen with imperfect information: While government agencies and the media are doing their best to circulate facts, much remains unknown. To be sure, a number of factors make COVID-19 feel unique and more difficult than past health crises—but the same essential rules apply for managing it.
Crises like this do not come around very often, but when they do, they provide a clear test of how well a company is performing on some of the most important and sometimes overlooked measures of success. As I’ve mentioned in past articles, to be successful, I believe companies need people-centric cultures that include a strong focus on safety, as well as a commitment to operational excellence that enables innovation and continuous improvement. This virus outbreak will serve as a defining moment for companies on all of these principles. Further, the company’s balance sheet will also be a key element to surviving the crisis as cash flow and inventories are impacted. While sound financial management is critical to success, the board should separate the state of the balance sheet and how it influences the long-term implications of the COVID-19 disruption from the broader leadership response to the crisis.
Boards have a very important role to play in helping companies and leaders thrive in this crisis. By staying close to their mandate to take a long-term, big picture viewpoint, directors can provide much-needed perspective and value to the CEO and executive team as they manage through the situation.
In particular, what should the board concern itself with during this challenging time?
People are the company and this is an opportunity for leaders to prove it. The board should be listening for reports from the management team regarding the health and well-being of team members, from the top to the bottom of the organization. Directors should be listening to ensure that all employees have a safe and sanitary workplace, the freedom to express concerns, access to medical care, and clear direction about how to handle potentially risky situations, including travel. The board should be briefed on technology and plans for remote work, and scenario planning around potential office and plant closures. They should be aware of plans to resume operations, as well as plans to retain staff who may be impacted by closures. If people at every level are not a focus in briefings, directors should be asking questions.
Discipline and operational excellence win in good times and bad. A well-organized crisis response is the hallmark of a strong operational excellence model. In it, a management team will have thought through the myriad potential impacts on operations, both likely and unlikely, and roles and responsibilities to address them are clear.
COVID-19 presents particular challenges because unlike a hurricane or flood, it is not a single event, and many of the facts are still not clear. Yet it is still possible to respond with excellence. I serve on the board of trustees for American University. There, AU president Sylvia Burwell, who was secretary of the US Department of Health and Human Services during the Ebola and Zika outbreaks, gave a spectacular briefing on the crisis. She offered context for COVID-19, explained what was still uncertain, and then gave clarity on what the university needed to do to deal with it, from creating policies for students who were studying abroad or wanted to leave campus for spring break all the way through to potential implications for enrollment for next fall.
At this point, management teams should be able to offer their boards a similarly crisp and clear operational response to the virus. They should be leveraging information networks both inside and outside the company to get the best intelligence they can. They also should have thought through the near-term implications of COVID-19 on all aspects of the business, including day-to-day operations, financial metrics, and how to communicate with a broad range of stakeholders including investors, suppliers and customers. Importantly, this should include plans for what to do if any of the management team members or other critical staff members fall ill; a topic many are reluctant to tackle. If this aspect of the crisis response is muddled or sounds disorganized, the board should express concern and consider how to engage the CEO and management team in a constructive way. In addition, if the board thought the company had a strong commitment to operational excellence and doesn’t see it during this crisis, directors will need to challenge the management team further once the crisis passes.
Stay strategic and think long term. When the executive team is managing a crisis, it becomes tempting for board members to “get in there with them” and help. However, it is important for the board to resist this temptation (even if management says they are open to it), as the board is uniquely positioned to focus on a long-term strategic level. For example, what are possible ways the outbreak could affect year-end financials? Do we foresee any supply shortages or other resource constraints? Could it induce permanent game-changing ways of working, with remote access leading the way? Should the company reconsider the risk that offshoring work represents? These are all things for the board to start getting their minds around as the team is buried in the crisis response.
This sort of challenge represents a great time to assess the ability of the leadership team to flourish. Directors can assess how company leaders step up to the task of managing a crisis —solving problems and planning for the long-term—when they don’t have all the facts or answers. Extreme ambiguity is a different kind of pressure than businesses typically face, yet it is an essential one for executives—particularly anyone who is considered a CEO candidate—to master.
Ever heard the adage….never waste a crisis? As the board maintains a long-term perspective, it is important to consider any benefits that the organization might be able to glean from the crisis period. Are there staff or organizational tweaks that have been waiting for the right moment and will blend smoothly with the disruption caused by the virus response? Are there efficiencies or processes that seemed difficult or perhaps impossible to implement that are now happening out of necessity because of the crisis? For example, if one plant is down due to quarantine and a second plant has become exceptionally efficient at handling the extra work from it, why resume the old way of working?
Now is the time for the board to be thinking about questions like this, and to raise them with the CEO and management team as things settle down. The core question the board should pose is: What prevents us from making these changes the norm if they save money and are more efficient?
In the crisis, but not in crisis. During my tenure as CEO of Aera Energy LLC, I faced a steep, more than 70% drop in oil prices in 2008 in addition to the financial crisis. One of the members of my executive team coined the helpful phrase: “Aera is in the crisis, but there is not a crisis in Aera.” This phrase served as a rallying cry for us to be calm and disciplined in our response to the multiple blows to our business. We reiterated the belief that we were going to be strong and steady and that we were going to survive. Our board reinforced that notion by taking the long view with respect to potential layoffs, supply chain and contractor management, as well as potential strategic options. As the crisis ebbed and the economy began to recover, we were in a much better position to capitalize on the upside than others because of our board’s attention to the long term. Importantly, we had the support of our employees and suppliers because we had gone through the crisis together with them, rather than making hasty cuts.
When the management team is in the middle of making sure every employee is accounted for, it is more important than ever for the board to take a long-term view. Furthermore, by maintaining a commitment to the same elements that lead to success in good times—a people-centric culture, safety, and operational excellence—the board can help a company exponentially increase the likelihood of emerging from the crisis a winner.