Eric Chinchon (mebs): Governance in Times of Crisis
According to Eric Chinchon, founding partner of mebs, "The salvation of a company in times of crisis primarily depends on the human factor." In this interview, he details how to anticipate the risk of a crisis as well as the advantage of having an independent director in such a situation.
What are the challenges of good governance in times of crisis?
Basically, the stakes do not differ much from everyday life. The principles governing the split of roles and responsibilities between executive and non-executive functions remain. The board must continue to focus on the long-term strategy – and to prepare crisis exit, whilst management fulfills day-to-day responsibilities and aims to implement the strategy to meet the set objectives. That being said, the necessity of an independent director demonstrates its full importance when a company faces adversity and structurally critical decisions must be taken quickly. In times of crisis, the management environment is turned upside down by the sheer scale and speed of information flying around(sometimes contradictory). As challenges multiply, the board is under more pressure to make quick decisions. The risk of loss increases drastically, often fueled by emotional biases which can significantly alter the judgement of governing bodies. The independence of a director becomes then the added value necessary to make objective short- and long-term decisions, risk-adjusted in the best interests of shareholders.
“The multicultural vision of a professional independent director truly becomes invaluable in times of crisis”
How do you anticipate this type of risk before hand?
We cannot always predict the scope and magnitude of the challenges we will face. Therefore, governing bodies must remain flexible, agile and adaptable, and implement a clear, shared and understood crisis management framework. Such a framework will facilitate (as much as possible) rapid and informed decision-making, ensure control and monitoring of decisions so as to adapt them if required, and optimal internal and external communication. Implemented strategies must be expressed through relevant and recognized leadership. Risk anticipation also entails solid, transparent procedures that are adhered to across the organization (including business continuity plan). Their regular (stress) testing and evaluation is thus critical to ensure their robustness. Governance bodies should detect and analyze signals that could announce a crisis. Lastly, an organization must ensure its human capital is committed to efficient execution of procedures. Building, spreading and accepting corporate culture is key; same applies to ongoing training and knowledge of one’s staff. In this context, a clear leadership from governing bodies will further its compliance by the teams.
In this context, what are the advantages of using an independent governance body?
I see three main advantages, namely objectivity, regulatory know-how and experience. First, in terms of objectivity, an independent director is, by definition, free of any executive roles and possible conflicts of interests. In its purest form, the mandate of an independent director is to act as an insurance policy at board level for shareholders. Second, given that in times of crisis, compliance standards evolve rapidly (sometimes through texts which are difficult to interpret), an independent governance structure like mebs can offer clients real-time transparency on the evolution of regulations and provide tailor made solutions to mitigate new risks. Finally, a professional independent director is exposed to multiple mandates and therefore to various business strategies. He/she can provide a helicopter view on the ins and outs of sometimes radically different strategies to deal with a crisis. Thanks to an intrinsic understanding of current market practices, he/she can leverage his/her “know how” to promote the most appropriate solutions for each governing body and organization. The multicultural vision of a professional independent director truly becomes invaluable in times of crisis. Confucius summed it up very well: “Experience is a lantern that you carry on your back and that only illuminates the path taken.”