Why a good CEO prepares for risk
If I asked you to take to the skies and fly a plane, would you be confident doing so, having only read a manual? Probably not. Yet many Australian companies are taking this attitude when it comes to being prepared for a crisis.
Our companies are exposed to unnecessary risk and damage to their brands without the right training and, sometimes, without a parachute to catch them if they were to freefall during a crisis.
Our 2018 CEO Survey shows one in two (52%) of Australia’s CEOs (and 67% of CEOs globally) are concerned about their readiness and ability to respond to a crisis – indicating that organisations believe they are not crisis ready.
Further, 90% of Australia’s CEOs said they are in charge when a crisis hits, but only 30% have a proactive approach to their crisis planning.
The concern is that, for many, the concept of readiness is only ‘desktop ready’ – ‘here is our manual to read and our plan in the event of a crisis’. Untested plans and responses may crumble should a crisis occur. This results in poor decisions and may unintentionally cause harm because of the failure to understand the scale, size and speed of the crisis.
To be capable of flying a plane, formal training, simulations, safety drills, and in-depth knowledge of equipment is needed. You also need to be comfortable with and confident in the team around you – from your co-pilot to your cabin crew. Finally, a view of take-off and landing and a consideration of external factors, such as the weather, must be taken into account.
Preparedness is key and, as in a crisis, an effective response starts long before you’re sitting in the cockpit, waiting to take-off.
It is concerning that 50% of Australian companies do not test their crisis management/business continuity plans and less than 10% perform any simulation.
How should you prepare for a crisis?
According to our 2018 CEO Survey, the threats to business growth with the highest rise in CEO concerns include: geopolitical uncertainty, social instability, climate change and environmental damage, terrorism, cyber threats, volatile energy costs and supply chain disruptions. This echoes the sentiments of this year’s Global Risks Report, which details the increased concern about these complex risks for CEOs globally.
The higher frequency of crises and their widespread impact makes it inevitable that many organisations will face a future crisis. When a crisis hits, the core of an organisation is tested, its purpose and values are scrutinised, and the level of trust in management is examined.
There are four critical factors in managing a crisis well:
-
Readiness:
How well do you understand your threats and vulnerabilities? Is your response easy to use and understand? How confident are you that you can execute it?
-
People:
Under extreme pressure, people act differently and the usual organisational roles may not apply. Building trust in the capability of your team members is paramount.
-
Exercise:
Rehearsing a simulated event effectively challenges the level of preparedness in your team and processes. It also builds confidence in your people’s capabilities to be prepared for the unexpected.
-
Leadership:
Strong leaders respond to the warning signs when a crisis scenario starts to play out. They are able to negotiate the delicate balance between reacting too quickly and waiting too long, and will bring the right people together to respond.
Experience shows there is a real divide between companies that are prepared for a crisis, having gone through realistic and real-time simulations, and those that still think ‘it will never happen to us’.
When a company manages a crisis well, it comes out stronger than it was before; when it doesn’t, things can go horribly wrong.
If you are facing a freefall, how prepared are you going to be? Have you packed a parachute?
Explore why crisis planning is a courageous decision CEOs and organisations need to make for 2018 via our PwC CEO Survey results.