The Board's Role When Natural Disasters Strike

Nicholas J Price
6 min read
Natural disasters are sudden, accidental events that occur with little or no warning. The effects are often of great magnitude and cause considerable damage to life and property. We can't prevent them from happening and no business is 100% immune to natural disasters. The board's role in natural disasters is to be aware and to protect the business as much as possible.

What Kinds of Disasters Should Boards Prepare For?

Certain regions are prone to particular types of natural disasters. Smaller companies need to prepare for the types of disasters that are apt to occur in their areas. Larger entities may need to prepare for multiple types of disasters. Common natural disasters include:

  • Tornadoes, severe storms
  • Flooding
  • Hurricanes, tropical storms
  • Wildfires
  • Earthquakes
  • Droughts
  • Volcanic eruptions
  • Landslides
  • Tsunamis

Businesses may also be affected by man-made disasters, which involve some sort of human intent, negligence, human error, system failure or mishandling of equipment. Disasters can cause extreme loss of life and property damage, especially when due to fire explosions or collapse. Examples of man-made disasters are:

  • Train accidents
  • Plane crashes
  • Oil spills
  • Building collapses
  • Bridge, mine or tunnel collapses

The Board's Role When Natural Disasters Strike

Natural and man-made disasters can create a domino effect on tightly linked supply chains that makes it more difficult for companies to recover. The board's role is to develop and oversee a crisis plan and make sure that all responsible parties are accountable for their part in responding to a disaster. How well the board manages a disaster is a reflection of their performance ' good or bad.

Overseeing the Crisis Management Plan

The board's role in natural disaster response is to ensure that management has the right framework in place and that they have the proper resources to react to a disaster and to recover from it as quickly as possible. Boards may want to participate in simulations and tabletop exercises with all those who'd be involved in a disaster, including management teams, to gain familiarity with the response. Boards should ensure that management places someone in charge who has in-depth legal and compliance experience and who has experience with day-to-day operations and tactical responses.

The disaster plan should include involvement by internal and external communications teams to make sure that key audiences are getting the right messages. The plan should account for actions that need to be taken before, during and after the disaster. The disaster plan should be part of the company's broader Environmental Resources Management (ERM) program, which would ensure that it's informed by the company's strategic plan and risk tolerances.

Various people within the company can be instrumental in helping to minimize the damage after a disaster. Consider duties for the following people:

CEO: Serve as primary leader in the crisis management efforts, signal the management team to action, and work with all others to mitigate the effects of the disaster.

Business operations and business units: Focus on gaining an understanding of the impact the crisis will have on customers, suppliers, etc. Follow through with disaster recovery plans and foment business as usual as soon as practicable.

Internal and external legal teams: Review potential compliance and legal impacts and communicate with parties accordingly. Have draft messages ready ahead of time and be clear on who the spokesperson will be. Be knowledgeable about insurance requirements to cover losses.

CCO: Share credible and transparent messages about what occurred and how the company is managing it. Companies may decide to engage third parties for communications efforts.

CRO: Work with legal teams to identify and manage new risks that result from the disaster.

CFO: Work closely with legal teams to file any required public disclosures, file insurance claims and work with business units to assess financial damages.

External auditor: Comprehend and evaluate potential adverse financial impacts of the disaster, including regulatory, legal and internal controls.

IT and security teams: When a disaster affects technology, IT and security teams take the lead in determining how the company can best run until all systems are up and running smoothly.

Investor relations: Assesses consequences to the investor community and develops a communication strategy.

External investigators, public relations, human resources, marketing: Various roles for gathering evidence, identification, discovery and communications.

What Lessons Can We Learn from Board Responses to Real-World Disasters?

By taking a look at past natural disasters, it's easy to see the destruction that can happen. It's also easy to see how a board's response can make things very much better or very much worse.

One of the more notable companies that has experienced multiple man-made disasters is the oil-producing giant BP. The company has had oil leaks or explosions in 2005, 2006, 2009, 2010, 2011 and 2012. The 2005 explosion killed 15 workers and injured 180 more. The 2011 explosion killed 11 workers. Comments by BP's CEO, Tony Hayward, made matters worse after the 2010 Gulf of Mexico spill by shifting blame to the rig's owner and arguing about the amount of the spill and how much damage it was causing.

On a positive note, a few other companies have stepped up to the plate at times of natural disaster. Before Hurricane Irma hit Florida, Airbnb activated a disaster response program in the area encouraging hosts to list their homes for free and invite evacuees to seek shelter through their platform. Uber capped its fares. Tesla unlocked the full battery life of the 2016 Model X and Model S vehicles so owners could escape on a fully charged battery. GasBuddy rallied gas stations and users to upload information to their mobile app so that drivers knew where they could get gas. Facebook activated Safety Check. These companies used a disaster as a way to improve the company's reputation.

Stay Updated with News on Natural Disasters

PG&E offers a highly informative website with a host of news about how to save energy costs, handle emergencies and get the latest information on natural disasters. The power company in your area is another great resource for updates on natural disasters that could affect your business. What's even better is that if you use governance software solutions from Diligent Corporation, you can set up to have PG&E and other news sent to you as frequently as you desire by using Governance Intel.

Governance Intel combines and securely aggregates a company's subscription sources and internal data with over 70,000 authoritative open-web business news sources using a single tool that brings the news you want to read directly to your dashboard or mobile devices.

News of a natural disaster travels quickly because of the 24-hour news cycle and the viral capacity of social media. These issues are bound to contribute to the destabilization of a company and to increase the risk for reputational loss. Review your disaster plans often and take advantage of modern governance tools by Diligent for the most efficient board processes.