Key elements of a Crisis Plan

Board leadership for companies in crisis

Five questions will tell if your board is engaged

By Taylor Simonton

A crisis can quickly turn into a disaster if a company is unable to respond properly.

According to National Association of Corporate Directors (NACD) Director Handbook Series (www.NACDonline.org), Board Leadership for the Company in Crisis, co-authored by Suzanne Hopgood and Michael W. Tankersley, “Early-stage and financially stressed companies often exist in a state of continuous crisis. Mature, well-managed companies may experience crisis only rarely.

“But no one escapes entirely. The leaders of successful companies, and those that have merely managed to survive, always carry with them stories of crises averted or overcome. The vast majority of the failures-the companies pushed into distress sales, bankruptcy, or irrelevance-have been brought down by crises that overwhelmed their ability to gather sound information, plan and respond.”

The board of directors is responsible for assuring that the company’s management has a sound crisis plan. The Colorado Chapter of NACD sponsored a Director Roundtable on “Board Leadership for Companies in Crisis,” which Suzanne moderated. Our Roundtable discussed actions of successful boards of directors in thinking through crisis response in advance, identifying steps to take when faced with a crisis and ensuring critical elements are in place at the board level to deal with a crisis.

Suzanne shared her views in an interview on the five questions which framed our Roundtable discussions:

How do I, as a director, think about a crisis in advance?

The steps to crisis planning start with identifying the risks that can destroy the company. Those risks might include product malfunctions, plant explosions, shareholder activism, inadequate human and financial resources, supply chain failures, risks stemming for a bad culture and government investigations. These many risks suggest that the board of directors should be involved in understanding exactly what risks would endanger the company’s survival or long-term success.

What are the key steps in crisis planning?

The first steps involve developing a team and a 24/7 contact list. Secondly, work through the list of risks identified to be certain that it is complete. Lastly, discuss ways to mitigate as many risks as possible. Identifying risks and discussing mitigation of risks create a better understanding of a risk/reward relationship.

Conducting a practice drill involving the participants verifies the responsibilities of each participant and makes it a working plan. When a crisis first appears, the information represents only the tip of the iceberg and there is far more not yet revealed than is presented. Assuming that you already know the worst will lead to bad decisions. What you do not know is likely to be far worse.

What are the first questions in a crisis?

The most important question for a board of directors to determine immediately is whether the CEO and/or CFO are part of the problem or part of the solution. If they are part of the problem, the board may have to step in to assume leadership or communications roles. A spokesperson and a crisis leader, not necessarily the Chair or Lead Director, should already be identified as a person with experience and who is prepared to take charge. The next question is who in the organization has the necessary critical information. Then, who is in charge of communications and how quickly can you issue the first information?

How are communications handled?

In a crisis, the communications person should be sitting at the table with the lawyers, board of directors, CEO and other key participants in resolving the crisis. While the lawyers are focused on limiting the company’s liability, the public relations/communication function is to preserve the company’s reputation. A well thought out communications strategy is critical. A variety of messages should already be created and ready to send. Maintain a website which is “dark” but ready to use to deliver messages.

The spokesperson for the company should have completed media training. If the crisis attracts national or international interest (such as with explosion, environmental disaster, major product recall, etc.), the spokesperson, who should be the CEO or board representative, needs to convey leadership, confidence and sincerity.

Is there a team?

Having the right people on the team, being able to communicate immediately and having a crisis plan whereby each team member knows what their overall responsibilities are is critical to a successful result. Team members may include the senior management team, a member of the board of directors, external audit partner, outside counsel, public relations firm, criminal defense counsel, bankruptcy counsel, investment banker, etc. While this list may seem extensive and unnecessary, imagine trying to Google “criminal defense lawyer” when the U.S. Attorney is already in your office with a subpoena. Recognizing and using board members’ specific skills is critical. Many companies weather serious crises that no one ever knows about because of their successful crisis plan execution.

 

Taylor Simonton, CPA, is Chairman and Past President of the Colorado Chapter of National Association of Corporate Directors (NACD), a retired PricewaterhouseCoopers National Office SEC Partner, and is serving or has served on the board of directors of five Colorado companies, usually as an audit committee financial expert. With over 10,000 members, NACD is the only membership organization delivering the insights and wisdom that corporate board members need to confidently navigate complex business challenges and enhance shareowner value. Taylor may be reached at tsimonton@nacd-colorado.org or http://www.linkedin.com/in/taylorsimonton.

http://www.cobizmag.com/articles/board-leadership-for-companies-in-crisis/

 

A city of the future?

Hartford had an inaugural ball last night for our newly elected Latino Mayor, Attorney Pedro Segarra.  His spouse, Charlie Ortiz, accompanied him.  The ballroom of 900 diverse people (with proceeds to charity organizations) was filled with business people, non-profits, government, neighborhood people, city and suburban residents of different ethnic, cultural, economic, religious, experiences, educational backgrounds, ages, and political beliefs, all giving Mayor Segarra their rousing and vocal support.  We have many challenges, but if last night is any indication, we have come together around a leader who came to the city as a 15-year-old runaway and has made a solid contribution ever since.  Our differences don’t matter.  The challenges we face do.  The energy and commitment to work together and overcome the barriers/hurdles was evident throughout the evening.  Are we a city of the future?  We may be..  We’re not bogged down in pettiness and I hope we can continue to expand upon that energy.  It was a magical evening and spawned so much hope for the future.

http://www.courant.com/news/connecticut/hc-hartford-mayoral-ball-0122-20120121,0,6170563.story

Is it “Bain” or about “doing the right thing”?

Who is asking “is this the right thing to do” when business or political decisions are made?  Big banks and mortgage lenders had bet against their own customers, taken chances comparable to playing the roulette table, and gambled away our future.  Certain Congressmen used insider information to bet against our country.  Isn’t that the issue today?  When egregious executive compensation is granted, while the workers receive little or no increases and reduced benefits, who is asking “is this the right thing to do?”  When a F-500 company sells a product on-line, verifies the sale and charges for it…EXCEPT they don’t actually offer what they’ve sold, who is asking “is this the right thing to do?”  Whether it’s Bernie Madoff or any other business engaged in deceitful practices, isn’t this the question we’re all asking, “is it the right thing to do?”  The question isn’t whether Bain operated within the law.  It most likely did, but did anyone ask, “is this the right thing to do?”  I think that’s the fundamental question we’re all asking today that’s made Bain the scapegoat.  What’s happened to our culture that the person asking “is this the right thing to do?” has been silenced.

I served on the board of PointBlank Solutions, Inc which was faced with extremely challenging times.  After every discussion and before a decision was made one of the board members would ask, “is this the right thing to do?”  It’s a wonderful question to ponder as we’re making decisions that impact a wide variety of people’s lives.

I grew up in a family owned business.  No decision was ever made solely to make money.  My dad had the opportunity to purchase the A+ location in town, but he would have had to tear down an old New England church in order to use the site.  The church is still standing.  His answer clearly was “no it’s not right to destroy a landmark, much-loved church so I can make more money.”  Is that what’s missing in our business and political environment today?  Has making money become the only consideration in making business decisions?  Have the ones who might have asked “is it the right thing to do?” been silenced?

I’m working through my third fraud experience in the past twelve months and I know how pervasive fraud is, which is a different issue from operating within the law but without regard for doing right.  I watch employees who need their jobs in order to support young families wrestle with doing things they know are wrong, but they need the job, especially in this environment.  I watch their actions take a nick out of their soul every day and I hope they can someday regain the ground they’ve lost.  They hate it!

Aren’t these the fundamental questions we’re asking about our own culture and the culture of the businesses we so want to succeed and grow and employ more people?

Is it the right thing to do?

 

A Model for 2011 Executive Comp changes

The following was provided by Lawndale Capital:

“In an 8-K filing on January 4, 2012, P&F Industries (O-PFIN) disclosed it has entered into a new 3-year Employment Agreement (“New Agreement”) with current Chairman and CEO Richard Horowitz replacing one that expired at the end of 2011 (the “Expired Agreement.”)

Previously, Lawndale Capital Management, P&F’s largest independent shareholder, in a May 25, 2011 13D filing and letter to P&F’s board, called for a reduction or elimination of egregious compensation terms in any new contract with Mr. Horowitz, in particular lower “guaranteed” base compensation. Lawndale’s 13D filing and this May 25, 2011 letter can be found at: http://www.sec.gov/Archives/edgar/data/75340/000093583611000074/pf13da.htm

It appears that the New Agreement differs from the Expired Agreement in several material respects:
Mr. Horowitz’ Base Salary has been reduced from the Expired Agreement’s minimum $975,000/year to $650,000/year;

• Mr. Horowitz’ “Target Bonus” has been reduced to 50% of Base Salary vs. 90% of Base in the Expired Agreement and, in addition, PFIN’s Compensation Committee has the right in Year 2 or 3 of the New Agreement to reduce the Target Bonus % (from 50%) and apply such Target amount into a long-term cash or equity incentive plan;

• Mr. Horowitz’ “maximum bonus”, based on exceeding performance targets, is established at 150% of Base Salary vs. no apparent maximum in the Expired Agreement at all; and

• The New Agreement allows someone, other than Mr. Horowitz, to be elected Chairman of P&F’s Board without triggering an onerous and costly “Termination Without Cause or for Good Reason” event. In the Expired Agreement any removal of Mr. Horowitz as Chairman triggered the same costly Termination/severance provisions. “

What a tangled web we weave when attempting to deceive..

Twice in 2011 I suspected parties with whom I had business relationships of stealing money.  Both times I asked for  specific documents over a 5-12 month period until I had sufficient information to prove the fraud and take further action.  Both times I have been shocked to receive what I requested, including specific lists of unauthorized/inappropriate payments made and who they were made to, which confirmed the fraud.    I’m fascinated that over time I have received all the evidence I’ve needed to show long-term intentional misappropriation of funds simply by asking for the documents which show exactly what was occurring.  I equate this process to conducting a very focused discovery process but without litigation.  And no I don’t know why people deliver information that could lead to jail time for them.  I’m fascinated that this worked twice in 2011.

The first sign of fraud is always in asking for information which should be readily available and not being able to get it.  I can only think of one reason not to share information from a legitimate request.  Once refused information, it pays to become much more interested, focused, and aggressive about getting the (now mysterious) information.

Remember when there were consistent complaints about people on welfare acting as though they were “entitled”.  There are many people today at all levels who believe they are entitled to take what they want to achieve a certain life-style.  Employees who are the sole support of their families are particularly vulnerable to supervisors directing them to take inappropriate actions and it becomes harder and harder to extricate themselves from the deceit.

We’re in a time that requires constant diligence in order to protect our investors, the company, and ourselves.

Dad and his granddaughter discuss Belgium visit to WWII family

Dad and his grand-daughter, Cheryl, visited the family Dad stayed with as a WWII soldier in Belgium.  This is their discussion of the visit, which was remarkable for both of them.  Dad’s book, “A Citizen Soldier Remembers:  1942-1946” tells the story of his war years.

“We just want guys like ourselves sitting across the table”

Thank you, TK Kerstetter (TK’s Holiday Boardroom Gift List) for a thoughtful list of gifts for Lead Directors, Compensation Committee Chairs, Qualified diverse board candidates, Investors, Congress, and Public Company Directors. Not surprisingly, I particularly like TK’s comments about Qualified diverse board candidates: “I’d like to gift this group a jackhammer. I’m really frustrated when I hear that there are no qualified diverse candidates to recruit to their company’s board. I’d rather someone just come out and say, “We just want guys like ourselves sitting across the table.” That’s at least being honest. The jackhammer will allow qualified diverse individuals to, once and for all, break through this concrete ceiling and by doing so, open the door for some amazing board candidates (who also happen not to be sitting or retired CEOs). By the way, I’m actually talking about diversity of thought when I say diverse candidate but that can’t help but include gender and ethnicity as well.”

http://www.boardmember.com/The-Board-Blog-TKs-Holiday-Boardroom-Gift-List.aspx

Using Social Media – a personal viewpoint

As promised, here is my explanation of how I use blogs, Facebook, Twitter, and Linked-In.

I first signed up for Facebook so I could communicate with my then 18-year-old Great niece, who was leaving a very small town in Northern NY state for school in LA and I wanted to stay close to her.  My “friends” really are friends and family and I post frequently to keep them up to date with what’s going on in our lives and my family (and friends) do the same.  Frequently when I see someone I haven’t seen in months, we pick up the conversation from our last post, which may be a trip the other person took or an event we attended, or a family gathering.  I post frequently about my Dad, with who our family seems always to be on some adventure. Five of us took him to Dublin for his 89th birthday and we’ve been on adventures (and family golf tournaments) since then, which we’ve posted.  Friends are always asking for an update.  A frequent concern/question I am asked is people telling me they don’t want to share information, especially personal information, with others.  As one lawyer stated, “I don’t want pictures of me wearing a lampshade on Facebook”.  Well…. DON’T POST THEM, then!!  What each of us posts is totally within our control.  Many of my friends don’t post anything but tell me they enjoy reading about my family’s adventures… and our great meals together.  In short, it’s a way to keep up with family and friends.  I found college classmates from my one year at Northeastern (before transferring), who I have thought about often since then and am so happy to re-connect with them.  I am also connected to news outlets (NPR, etc) where I want to be certain I read certain subject or topic-specific information from them.  Lastly, our Chief Operating Officer in the city started a group known as Downtown Dwellers, which now has 515 participants.  The conversations are wide-ranging from announcing art openings to concerns residents have about an issue to recommendations for specific services.  It’s fascinating and it’s fun to then meet people whose postings we’ve been reading.

Twitter:  My only regular postings on Twitter are from feeding both of my blogs into Twitter and I seem to be accumulating followers.  I also use Twitter to keep up to date with emergency notifications.  Our city Chief Operating Officer, a local weather man, Fire Chief, and Mayor are local Tweeters and are good communicators on Twitter in a crisis.  News journalists who followed the trial of former Mayor Perez Tweeted from the courtroom so we could follow the action as it was happening.  Twitter is the best location for “breaking news” pieces that are relevant to my life.  The trick is to “follow” people who make valuable, interesting, and timely contributions.  It’s our choice who we follow.  Delta has a Twitter account whereby you can contact them by Twitter and they will respond to the issue you’re having immediately.  That’s very helpful.

Linked-In consists of my business connections.  Again, you connect with people who want to connect with you and vice versa.  There is useful information and contacts on Linked-In as on FB and Twitter, depending what you want to know and how you want to use the site.

Blogs:  I have two blogs:  hopsuz.wordpress.com and hopgoodgroup.wordpress.com.  hopsuz is my personal blog and I post mostly bicycle information about trips or packing or traveling.  hopgoodgroup is more business focused and I post my own insights from my experiences or thoughts about articles from others I find worthwhile.

For each and every one of my posts, I ask myself if I were in a deposition how I would feel about answering questions about a post I’m about to make and it causes me to think carefully about what I’m saying, which I think is good.

Nick Bilton’s book about social media suggested that in the new world, we would use these vehicles to be always current on the topics we care about, which could be world news, or sustainability, or whatever… I didn’t understand it at the time, but I understand much better.  As the world is overloaded with data we need a filter and our social networks serve that purpose.  We don’t have to sit through the evening news which is already outdated, much of the time is spent on advertising, and the rest of topics we don’t much care about.  We can stay current on topics of interest in choosing carefully who we “follow” or connect with on our social networking sites.

There is much that I’ve missed and I will update this as topics occur to me, but it’s a start for those who would like to hear one person’s reason for participating and how I use the sites available to me.

For boards of directors, knowing that someone is monitoring sites so if there’s a video or posting that has the opportunity to impact the reputation of the company or “go viral”, someone will be reacting quickly should cause numerous questions to be asked at the board.  Conversely the marketing and sales opportunities are endless as are the opportunities to learn more about the customer.

Social Media Challenges & the Board – Social Media Guru, Doug Chia

Doug Chia is Corporate Secretary and Assistant General Counsel for Johnson & Johnson.  His interview with TK Kerstetter addressed “Educating Board Members on Social Media Challenges”.  Board members need to understand how Social Media is being used by the company AND against the company.  Social Media sites such as Twitter and Facebook will become, if they’re not already, part of everyday life.  Facebook has more than 800 million users, which would make it the third largest country in the world if it were a country.  If companies are not using social media tools to drive business, their competitors are.  Boards need to understand both how companies are using social media to drive business and connect with customers.  They also need to know the reputational risks arising from those using social media outlets to share negative information about the company and how to address those concerns.

Doug actively participates on Social Media sites and is knowledgeable about the great benefits of participating as well as the need for companies to have policies and procedures around a social media strategy.

As individuals, we all need to develop our own personal social media strategy:  how much do we share, do we post comments, who are our “friends”, how do we use Facebook, Linked-In, Twitter, etc.? I will share my own strategy on the next posting.

Thank you, Doug for an informative program.  The link is below.

http://www.boardmember.com/this-week-11-17-11.aspx

Building a board

TK Kerstetter conducted a great interview with Linda Rebrovick, Nom/Gov Chair, HealthStream.  She provides valuable information concerning the women’s organizations with directories of experienced women directors.  The challenges she faces as Nom/Gov Chair:  Board Evaluations guide the company to have the right board with proper skills, expertise, and diversity.  Diverse groups drive the board to better answers.  Diversity of thought leads to diversity of race, gender, and international expertise.  Women’s organizations:  ION (15 chapters with 10,000 women), Women Business Leaders in US Healthcare, Women Corporate Directors – the only global women’s director organization – 1350 women on 1500 boards.  There is no lack of qualified candidates and these organizations provide qualified candidates for boards to consider.

http://www.boardmember.com/this-week-11-10-11.aspx