Boards and Crisis ManagementBy: Martin Salas
Published in Semana Económica magazine on 07/28/2017
When the noise still resounds due to the Pura Vida scandal, some experts attribute the root of the problem to the lack of adequate corporate governance (SE 1577). However, having implemented one is not enough to avoid reputational problems, although it may reduce their probability to happen. Emblematic cases in the US such as Enron, AIG or recently Wells Fargo, occurred in leading public companies, with corporate governance implemented, independent boards and executives graduated from the best MBAs in the world.
Corporate governance duly implemented could reduce the adverse impact of reputational crisis such that like Gloria’s. In the first place, the inclusion of external directors with international experience allows to have an independent perspective that benefits particularly companies with regional presence. This way, crisis management committees and operational and financial contingency plans are part of the board’s responsibility. Testing them early serves to identify if the roles and people assigned to critical tasks and responsibility are, indeed, the right ones.
Secondly, a risk committee reporting directly to the board is responsible for identifying the vulnerability or potential adverse impact of brand product management beyond legal compliance. Finally, it serves to have fully aligned the business strategy, roles and responsibilities in the organization.
All the above is critical in order to prevent issues because, once in the field of public eye, it is Crisis Management that takes the leading role. In other words, the benefit of having corporate governance lies in prevention and planning rather than in the pure management of a crisis. This has to be led by the board of directors and the CEO, but with incentives for those who do practice the established governance, and with consequences for those who do not. Otherwise, the assumed cost can be very high.