Three Things Crisis Can Teach Us About Corporate Culture - Vinson & Elkins - CorpGov
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Three Things Crisis Can Teach Us About Corporate Culture – Vinson & Elkins
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Three Things Crisis Can Teach Us About Corporate Culture – Vinson & Elkins

 

Sarah Fortt, Counsel at Vinson & Elkins in Austin, TX

By Sarah Fortt 

In January 2020, which now seems like a very long time ago, I was speaking to a group of directors on board oversight of risk management, and at one point during my talk I uttered a phrase I’ve been known to say, “risk management is crisis management, and crisis management is risk management.” After the formal presentation was over, an attendee approached me to discuss that phrase, asking “Are you saying that crisis is inevitable?” I explained that my points were that, first, an effective and creative risk management program can help limit the scope and mitigate the effects of potential crises, and, second, there is, unfortunately, nothing like a crisis to reveal the ways in which a risk management program can be improved. However, to address that attendee’s question more directly, yes, crisis, of some variety, is inevitable. What is not inevitable is the outcome of crisis.

Since January, we have all experienced an unprecedented global crisis. The outbreak of the novel coronavirus (COVID-19) has created personal disasters, severe global disruption, and everything in between. Many organizations are now having to navigate a new reality with little to no warning, a reality involving a business climate characterized by extreme uncertainty, remote and/or significantly reduced workforces, cash flows that evaporate overnight, brutally erratic markets, and workers, customers and clients with very real concerns for their personal safety, and this is arguably just the beginning.

No one has perfect insight into the likely long-term effects of the COVID-19 crisis, not only on the global economy and specific industries and companies, but on families and individuals as months of uncertainty, trauma, economic disruption and social isolation take their toll. However, while we cannot underestimate the potential costs, both personal and professional, that can result from crisis, we also should not overlook the opportunity to learn from crisis, both as individuals and as organizations. As someone who regularly engages with boards of directors both in times of calm and in times of crisis, I have observed three lessons that crisis can teach us about a company’s culture if we are willing to listen.

Crisis reveals character

While all of us have both personal and professional selves, crisis reveals that in many respects, the walls we build between our personal and professional selves are thin enough to see through. Practically speaking, crisis peels the varnish off. For us as individuals, crisis brings our fears and insecurities, motivations and ambitions, flaws and strengths into conscious clarity. For us as organizations, crisis does much the same – it reveals what we will compromise if we have to and what we will protect at all costs.

When I engage with companies on the topic of corporate compliance, I often make the point that without personal integrity on the individual level, all the corporate policies and programs in the world will fail to establish an effective compliance program. Personal integrity is the catalyst for effective corporate compliance, or corporate integrity, but it is also the piece that is the most difficult to identify, encourage and measure. As integrity is the alignment of our values with our character and our character with our behavior, crisis can uncover the ways in which we as individuals or organizations are misaligned. In order to successfully navigate crisis both as individuals and as organizations, we must be willing to view any misalignment with honesty and course correct to the extent possible. The companies that are the most effective at navigating crisis recognize the value of this exercise of self-reflection and the positive long-term effects it can have on their corporate cultural health.

Practical steps companies can take to implement this principle:

  1. Companies should consider how the company’s values are being reflected in its response to the COVID-19 crisis. For example, what has the company disclosed regarding how it cares for its employees and how might the company’s disclosures address its crisis response in the future?
  2. Going forward, companies should consider how incentives can encourage newly identified behaviors for promoting the company’s values. For example, if a company has recognized as a result of the COVID-19 crisis that it wants its executives to be more engaged in promoting employee wellbeing, how will that new behavior be encouraged?

Crisis refocuses us on our community

All corporations contain hierarchies, spoken or unspoken. Often, when we discuss corporate culture, the focus is on the “tone at the top,” or the ways in which the board, CEO and other executives build, incentivize and protect the corporate culture. However, in both times of calm and times of crisis, an understanding of the importance of both the “mood in the middle” and “buzz at the bottom” is also critical for promoting corporate cultural wellness. Ultimately, a corporation’s culture is not what it posts to its website or what the CEO says it is, it is the day-to-day experiences of the individuals who are part of that community.

When I engage with companies on the topic of corporate cultural wellness, the discussion often turns to how individuals, regardless of their position or power, can contribute to a healthy corporate culture. Yet often during times of calm, as individuals, we do not take opportunities to consciously contribute to the health of our corporate culture, opting instead to drift along with the cultural current. Crisis provides us with the opportunity to challenge ourselves, both as individuals and as corporations. Is our culture working for everyone or just a powerful minority? Are we proactively protecting the most vulnerable among us? The companies that are most effective at navigating crisis recognize the value of community members, both as workers and as humans, at every level of the organization and harness the collective experience of crisis in order to build a stronger community in the longer term.

Practical steps companies can take to implement this principle:

  1. As part of their COVID-19 crisis response, many companies are implementing programs to check in on employees’ wellbeing. Programs like this may continue to be useful tools for building community even after the initial crisis is over, and could be used in conjunction with mentoring programs and other exercises aimed at recognizing the innate gifts in others.
  2. Communication is a fundamental part of any crisis management plan, with broad implications. With respect to corporate culture, communication should not just be viewed as a means of addressing legal requirements, but also as a means of acknowledging the concerns of those in the community. Consider how your corporate communications are acknowledging the human side of crisis.

Crisis requires courage

I am often asked to speak and educate on the topic of oversight of risk management, and often in that context, the topic of crisis management comes up, as it did during that speaking engagement in January. In both the context of risk management and crisis management, I often discuss the importance of identifying “sacred cows” and exploring whether they are creating risks that are going unmanaged and unmitigated. “Sacred cows” are people, products or principles that an organization will go to any lengths to protect. Often, sacred cows are what we feel makes our organization “special,” and for that reason, sacred cows may go unexplored and unquestioned. A healthy corporate culture will continually explore whether sacred cows are creating company-specific risks, but doing so requires courage, and not all corporate cultures reward courage.

Crisis can provide the break in the status quo necessary to encourage companies to reassess their approaches to risk management, including the opportunity to challenge whether sacred cows are being assessed for risks as part of that process. Crisis affords us with the opportunity to be courageous in how we manage the crisis, and we can continue to practice courage in how we move forward after the crisis has passed. The companies that are the most effective at navigating crisis recognize the value that brave conversations can bring to their long-term strategy and sustainability as an organization, and build opportunities for courage into their corporate cultures.

One practical step companies can take to implement this principle: Many companies’ enterprise risk management programs suffer from a failure of imagination, and this crisis provides an opportunity for these companies to think more broadly about risks, particularly nonfinancial ones. But companies should also consider whether their enterprise risk management programs are suffering from a lack of courage – an unwillingness to identify the ways in which a particularly influential executive, a product that makes the company more money than any other, or a principle about what makes the company “special” is actually creating risks that are going unmanaged and unmitigated.

While crisis may be inevitable, how we respond to it and who we become as a result of it is not. Both as individuals and as companies, we have the ability to choose what we learn from crisis, and the ability to use those lessons to contribute in more meaningful ways to our communities.

Sarah Fortt is Counsel at Vinson & Elkins in Austin, TX. Her practice is focused on board-level matters and she regularly engages with boards, public and private, on matters regarding corporate governance, disclosure and regulation, and provides board education, representation and engagement on topics including corporate culture and disclosure, reporting requirements, “ESG” (environmental, social and governance) matters, investor engagement, board composition and board and c-suite succession planning and transition management. Her complete bio is available at https://www.velaw.com/people/sarah-e-fortt/

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