Building Board–Management Dynamics to Withstand a Crisis: Addressing the Fault Lines

Building board–management dynamics to withstand a crisis: Addressing the fault lines

Crises can strain relationships at the top of organizations to the breaking point. Improving the dynamics between board members and senior executives can make recovery from crisis more successful.

A corporate crisis has become a modern-day rite of passage for the board directors and senior executives of many companies. Everyone knows by now that crises are an ever-present threat that can strike any organization, no matter how apparently well run. Crises can emerge from a clear blue sky, escalate within hours or even minutes, and threaten an organization’s viability. They may also arise when long-simmering issues spiral out of control. Institutions have paid the price: huge regulatory fines or legal settlements, shattered reputations, lost trust, and decimated share prices.

Less discussed are the significant personal costs. Crises are emotional events that severely stress the relationships between the CEO, the senior-management team, and the board of directors. Crises can end careers. Such stresses can make the response to the crisis less effective and severely impair an organization’s ability to emerge strengthened from it and return to a path of profitable growth.

Yet how many companies can truly say they are prepared for this dimension of a crisis? How much of the work of crisis preparedness fully considers interactions within the board and between the boardroom and the executive suite? What is the best way to identify and address the risk of deteriorating organizational dynamics—ideally, before a crisis?

The focus on the board’s compensation committee has never been sharper. The components of compensation plans and the link between compensation and company performance are under intense scrutiny from shareholders, employees, policymakers, the media, and other stakeholders. The Report of the NACD Blue Ribbon Commission on the Compensation Committee revisits NACD’s 2003 Report of the NACD Blue Ribbon Commission on Executive Compensation to highlight the new environment in which compensation committees—and, more broadly, boards—are now operating. It recommends that the compensation committee and board work together to establish an executive compensation philosophy that supports the company in creating long-term, sustainable value.

The report includes ten specific recommendations for compensation committees to consider when evaluating their compensation philosophies. It also provides practical tools, such as sample compensation committee charters, a compensation committee assessment, and guidance on executive employment contracts.