‘Heavyweights’ on boards should take a stronger stance in a crisis

boards in a crisis

Recent corporate scandals once again demonstrate that big-name board members often won’t ask the right questions and be effective directors in a crisis.

Following recent, high-profile corporate scandals, a simple question arises – do more big-name board members need a better, practical understanding of their fiduciary duties?

How a board reacts to a crisis tells you a lot about the organisation

Take the scandal at Davy in Ireland. When a damning Central Bank investigation into the stockbroking firm came out, the board’s response was ‘ostrich-like’. 

The board and the firm knew the report was coming for some time. Why didn’t they prepare an adequate response, one that would soothe the concerns of their clients – one of which is the Irish government? The board’s chair John Corrigan, the former head of the NTMA, described it to a journalist as a ‘private matter’. 

Instead of getting out in front of the story, accepting the Central Bank’s findings and immediately removing the people involved from the firm, Davy’s found itself floundering on the ropes with a media story that kept pounding it until it put itself up for sale to try and dampen the outrage and the loss of customer faith. 

Boards in a crisis must be ahead of the story

The days are gone when being on a board was primarily viewed as a prestigious post, a supervisory role someone took following a solid career in the private sector. 

Board members are moving from passive administration to active leadership, personal accountability, and mentoring senior executives. 

Directors need to cease being reactive and turn into proactive leaders by approaching their work with greater accountability and dedication.

Members of boards need to create positive changes in the organisations they represent.

The dependency of boards on CEOs

A board of directors may look, to an outside observer, as a gathering of luminaries from the business, financial and political sectors. However, if they are there to ensure the future employment of their friend, the CEO, the organisation is in trouble. 

A recent scandal at the private Beacon hospital in Dublin involved its CEO, Michael Cullen, giving ‘left over’ vaccines to some teachers at his children’s fee-paying school as well as other people he knew. 

When a whistleblower revealed the story to the Irish Daily Mail, a national outcry ensued.

The board’s response was, to many people, seen as relatively soft. It ordered an independent review of the CEO’s actions. 

The Beacon board comprises big-name ‘heavyweights’ from the fields of politics and finance, including former A&L Goodbody partner Barbara Cotter, who is also the chair of the Strategic Banking Corporation of Ireland. Brian Cowen is a former Taoiseach (Prime Minister). The chair, Colm Doherty, was previously the CEO at AIB. According to the business, finance, economics and public policy current affairs publisher The Currency, total directors’ remuneration at the Beacon for 2019 was €962,000. 

Good governance is about ensuring directors ask the right questions. Decisions should be taken by board members who have access to the best information promptly and in an environment where there are no conflicts of interest.

Suppose the board is a room full of consensus builders and one visionary, dynamic CEO who controls the information and the terms and compensation of the board. In that case, the organisation is in trouble. 

It is often said that on a faulty board, people of high achievement walk into the boardroom and lose half their professional intelligence and all their courage. 

A faulty board thinks the CEO is the boss and acts as an operating division of the company.

With the recent surge of shareholder activism and the rising demand for more accountability from boards, the prospect of more reforms is likely. 

Board members need to equip themselves with the knowledge, the courage and the ability to ask the right questions at the correct times and take decisive action in a crisis.