As board members wade through today's grim business headlines of massive layoffs, tumbling stock prices, and chief executive officer terminations, many are asking themselves what they should do differently. Are there critical items that need to be on the next boardroom agenda? Should they be rolling up their sleeves and really digging in to help the company weather the storm? If financial results have them rattled, should they follow the lead of AIG (AIG) in firing the captain and having someone from the board try to steer the ship? Here are four critical things boards must consider in responding to today's tough business environment.
Revisit Your Corporate Strategy
If your corporate strategy was set six months ago or earlier, you should look at whether it's best to stay the course or make some critical changes to respond to the tough new economic environment. Take the time at your next board meeting (three or four hours for a really good discussion) to go back to the underpinnings of the strategy—the classic SWOT analysis (strengths, weaknesses, opportunities, and threats), with emphasis on the opportunities and threats presented in today's economy. What are some of the new threats that weren't present at the time the strategy was developed? Does the change in the economic environment actually create any opportunities for the company? How is the business positioned relative to competitors to withstand these threats or respond to these opportunities?
From here, consider whether there are new strategic alternatives worth developing for consideration at the next board meeting. Even if there aren't, get alignment from the CEO and the board as to whether the strategy needs to be modified in any way or whether it is truly prudent to stay the course.
Identify Your Risks
Spend another two to three hours at an upcoming board meeting talking specifically about risks. Focus on five major risks facing the company. How might they have changed in view of the current economic environment? What is the potential impact of these risks? How are they being managed? Should they be managed differently from six months ago? Invite key business-unit leaders with responsibilities for managing these top risks—be they financial, environmental, customer-related or whatever—to attend this board meeting. This enables the board to talk directly with the executives who have responsibility for these key risks and to get a sense of whether these folks are really on top of the situation.
Keep Those Sleeves Down
It's only human nature when a company hits a really rough patch, as many find themselves in now, that board members will want to help. To some, "help" means rolling up their sleeves and getting into detailed cost-cutting discussions or designing an organizational restructuring. Unless the CEO has specifically invited the board, or individual directors, to get involved in this way, it's really not that helpful. It's micro-management. And it tends to add to the CEO's burden in an already challenging business climate. As board members, you must ask yourselves: Do we have confidence in the CEO and the management team to lead the company through this tough economic situation? If the answer is no, then it's time to pull an AIG. If the answer is yes, then it's important to let the CEO manage and keep the board members governing.
Pulling the Plug
When losses mount and big investors rattle their sabers, boards always feel pressured to fire the CEO (BusinessWeek.com, 2/19/08). Whether you should take the plunge goes back to the earlier question: Does the board still have confidence in him? If the answer is no, the board must consider the timing and ramifications of pulling the plug. AIG's board had a viable backup plan for then-CEO Martin Sullivan the minute Robert Willumstad joined the board as chairman in 2006. In Willumstad, AIG had a director with the requisite background and experience to take the helm if they needed him.
Few boards are this lucky. Most have one or two retired CEOs who might be able to fill in for a short period while they search for a permanent replacement. Other key executives often respond by jumping ship—just when you need them most—and the whole organization loses focus, wondering about the future and typing up their own CVs at a time when the company desperately needs all hands on deck.
So here's a discussion for your next executive session: If your board did lose confidence in your CEO—or if another board decides to poach your CEO (BusinessWeek.com, 4/3/08) to fill its leadership gap—who could step into the breach? How credible would this person's leadership be to the company and to Wall Street? What key executives would it be critical to retain—and how would this be accomplished? If they left, how strong is the bench? Are there implications from this discussion for director recruitment, executive development, or executive compensation?
Tough times call for some tough boardroom discussions. Make sure your board steps up to them in the right way—your shareholders deserve nothing less.