The Role of A Director When A Temporary Crisis Becomes Permanent

As timelines for the pandemic continue to lengthen, recent statements from health officials now indicate that a vaccine may not be widely dispersed until next year. Board members have been forced to make two major adjustments: first, to crisis management as the lockdowns began; and second, to embracing long-term uncertainty as it becomes clear the pandemic will continue disrupting business for much longer than initially anticipated.

In the early days of the pandemic, most conversations focused on “weathering the storm” and holding out until things returned to normal. Board members were prioritizing initial crisis management: inspecting cash reserves, protecting employee health and safety and finding ways to shift quickly to virtual work. By July, however, it became clear that there would not be a return to normal any time soon – and that, in many ways, we might never return to the “normal” we were used to before COVID-19.

With no end in sight, board members must shift to a new, longer-term reality: What is the “new normal” for board governance? How can a board begin to prepare for the next crisis while this crisis remains ongoing? On a broader scale, what is the role of a director now that a temporary crisis has become permanent? The answer to these questions hinges in large part on adaptability, the centerpiece of board members’ idea of governance in the new normal.

The Way Directors Engage with Scenario Planning and Risk Management is Changing

It is clear that directors need to take the many lessons learned from the pandemic and incorporate them into future strategic planning and risk management. The ability of directors to use strategic foresight to prepare for multiple possible realities is vital for business continuity and survival. However, the idea that some risks are impossible to predict has really come into focus this year.

Despite this, directors still believe in the value of high-level and informed strategic foresight. Our conversations with directors have indicated that they place an increased value on being proactive and are already thinking about the next crisis. Although nobody correctly predicted the scope and length of the pandemic before it struck, boards that engaged in rigorous strategic planning and risk management exercises were better-suited to make rapid adjustments. For example, boards that had spent time thoroughly planning for possible cybersecurity risks and challenges posed by new technology were more prepared for the switch to virtual work, even though they had not prepared for COVID-19 itself.

This pandemic has shown directors that major global events, such as the financial crisis of 2007-2008 or another global public health crisis like COVID-19, need to be addressed more extensively in strategic planning and risk management exercises. A recent article in Harvard Business Review discusses the concept of the “black elephant,” which is a combination of a “black swan” and an “elephant in the room.” A black elephant is the next disaster that boards can see lurking in the future but which they fail to address. Specifically, when preparing for a possible black elephant, the worst-case scenario needs to be afforded more discussion and planning.

Directors are Looking for Adaptable Leaders with a “Growth Mindset”

As directors navigate the ongoing crisis and economic fallout from the pandemic, the strategic value of having “growth-minded” leadership has never been more evident. Nearly 15 years after Stanford University psychologist Carol Dweck wrote her seminal book, “Mindset: The New Psychology of Success,” boards are now aligned in cultivating a style of leadership that “embraces challenges, persists in the face of obstacles, sees effort as the path to mastery, learns from criticism and finds lessons and inspiration in the success of others,” to quote Dweck. While the directors we spoke with didn’t always use Dweck’s specific language, they emphasized to us the criticality of remaining resilient and agile and actively seeking out divergent points of view.

A Re-Prioritization of Skills

Boards have changed how they think about leadership and succession planning and what effective leadership means. The pandemic has shown that companies whose leaders fail to adapt in response to a crisis will not survive. Effective leadership before, during and after a crisis can make the difference between success and failure for any company.

In our discussions with directors, many lauded adaptability and open-mindedness as qualities that define strong leadership. Many directors touched on re-evaluating their hiring criteria for different leadership roles in order to prioritize nimbleness and flexibility in decision-making. Looking back on vital aspects of COVID-19 corporate responses, boards want to ensure that they have the correct leadership in place – on the board and on the management teams in particular – to make complex decisions quickly, nimbly and efficiently.

Directors viewed firsthand how various traditional governance processes were ill-suited in responding to the pandemic. For example, the importance placed on in-person meetings, which occurred a few times a year and which had rigid agendas, has been questioned. Given the rapidly changing business landscape, which has only been accelerated by COVID-19, many directors fear that entrenchment in traditional and obsolete ways of thinking is a pressing issue and a looming risk to business continuity.

The Strategic Advantage of Embracing Diversity, Equity and Inclusion

Modern leadership is imperative when it comes to preparing for the unexpected. Increasingly, modern leadership is diverse leadership. While 2019 saw the greatest number of women joining boards in a single year, only 15 percent of incoming directors to Russell 3000 companies were people of color and ethnic minorities. Meanwhile, the pandemic has exposed how homogeneity in the boardroom can lead directors to “groupthink,” where a lack of diverse perspectives leaves the board vulnerable to missing important context and insights.

Cultivating diversity of background, gender, racial identity, ethnicity and age brings the advantage of different perspectives to a boardroom or leadership team. It follows logically that the more perspectives present in a decision-making process, the more dynamic and flexible options a board will have in long-term strategy planning. Thus, directors are taking a closer look at prioritizing DE&I partially as a result of and a solution to newly visible gaps in leadership skills.

The events of 2020 have intensified the new emphasis on the stakeholder: the pandemic and its exposure of ineffective and inflexible leadership has coincided with a larger push for diversity in the corporate world, particularly in the U.S.

Responses to these issues have made their way up to the boardroom. Directors have responded to calls for increased diversity in many forms in 2020: increasing the frequency DE&I discussions in the boardroom, re-evaluating hiring policies to combat complicity in discrimination and, in some cases, beginning to disclose diversity data within the company.

Workforce Policies Will Remain a Prominent Board-Level Concern

Many directors noted that they felt more involved in and aware of operational-level decisions at the outset of the pandemic. In Diligent Institute’s latest “Ask a Director” series (March 2020), we learned that the line between management and the board had temporarily blurred for many companies in order to manage the most pressing issues. Whereas before, they may not have been consulted on workforce policies such as expanded sick leave or workplace sanitation, these were now chief topics of boardroom discussion due to the nature of the crisis.

A trend has emerged in Diligent Institute’s most recent round of director interviews: Directors are shifting their gaze back from short-term crisis management to long-term strategic planning as the world settles in for a marathon pandemic. However, workforce policies are still being included in these long-term planning discussions. For example, many offices will not be re-opening until 2021 and will not likely reach full capacity for months after “soft” re-openings. Therefore, adapting to the long-term and ever-shifting nature of the pandemic and what it means for virtual work will require that directors continue to be up to date regarding workplace operational decisions well into the future.

Questions for Directors

• How have you reassessed strategic planning and risk management in light of the pandemic?
• Has your company’s response to COVID-19 exposed any weaknesses or skills gaps in your leadership? If so, how can you work to close these gaps over time?
• How frequently are you communicating with management regarding changing work-from-home policies? Are different timelines and projections for when your employees can return to work part of your long-term planning?