Ranging from geopolitical volatility to cybersecurity breaches, robust crisis preparedness not only protects enterprises from the worst impacts of crisis events, but also comes with a promise of growing and supporting bottom lines further.
The imperative for building and strengthening organisational crisis preparedness and more actively involving general counsels (GCs) in this process is clear to businesses. However, an FTI Consulting-sponsored survey by Economist Impact of 600 primary legal decision-makers in North America, Europe, the Middle East and Africa (EMEA), and Asia-Pacific (APAC), reveals that they still have work to do to future-proof themselves against crisis events.
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Close to 70% of surveyed organisations lack a cross-functional crisis response team or pre-selected external advisers. Furthermore, more than two-thirds of surveyed organisations do not conduct crisis scenario drills based on learnings from past events. Encouragingly however, about 60% of GCs surveyed reported being more involved in organisational crisis management strategies than five years ago.
Profit versus prudence
But what is causing the disconnect between preparation and implementation? The answer is oversight. Organisations are prioritising crisis management in their governance strategy, but they are lagging in execution.
While the majority of those surveyed hold their senior-most leaders primarily responsible for governance on crisis management, employees at all levels must effectively scan and report red flags.
To be able to do this, senior leadership needs to clearly define and communicate the organisational risk appetite and promote a risk-aware culture, which encourages organisation-wide accountability on crisis identification and escalation. In addition, communication playbooks, a handy tool for internal and external messaging, are crucial yet uncommon in developing a crisis guidance system.
Notably, organisations are least prepared to manage crises that pose the greatest risks to their business. As crises intensify in frequency, severity and unpredictability, timely and thorough identification and escalation of red flags can be the difference between a brief interruption and a complete paralysis of critical business functions.
To ensure appropriate preparation, it is vital to carry out holistic scanning and monitoring for red flags throughout business operations. About three fifths of surveyed organisations fail to do this more than once a month, an alarmingly large proportion considering the potential unpredictability and severity of crises.
AI's untapped potential
Artificial intelligence and machine learning-based modelling can be particularly powerful in delivering comprehensive, granular and precise crisis impact assessments . It is crucial for successful crisis preparation to stay ahead of the curve with the latest developments that can be utilised in a company’s favour. The survey found however that over 70% of organisations fail to take advantage of the technological advancements.
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This limited adoption could be partly explained by the skills gap. Additionally, even when data doesexist, it might not be factored into the crisis impact analysis due to information silos across business functions.
The prevalence and intricacy of 'black swan' events, coupled with the lack of experiential learnings within businesses, should serve as a stark wake up call. Leadership teams often recognise what needs to be done but are yet to take timely and decisive action, while others lack the tools and resources that provide a comprehensive understanding of emerging risks.
It is clear that a mindset shift is needed to bridge the gap in order to become more informed, agile and effective in managing future events.
Lars Faeste is EMEA Chairman of business advisory firm FTI Consulting
