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May 26, 2016

Since the financial crisis, the challenges facing modern businesses have dramatically increased in scope, frequency and impact.

New digital entrants, economic shocks, regulatory changes and senior misconduct are just a few of the causes of firms finding themselves in hot water. For those ill-equipped to handle such disruptions, the results can be disastrous. But, boards that are willing to take a proactive and bold response can crystallise that rarest outcome of a crisis: an opportunity.

Most boards need a step change in approach. The first thing that should be avoided when navigating these choppy waters is an over-reliance on established management thinking. To date, much of conventional governance and well-proven leadership approaches have been based on companies operating in a steady state environment.

Though well-established, these "peacetime" rules and procedures are largely ill-suited to firms facing out-of-the-ordinary situations. Focusing too heavily on set procedure could lead to a failure to look at the bigger picture, which is often a major barrier to a successful recovery.

Those directors who fail to look at the wider context are often reluctant to admit that a corporate crisis is developing in the first place. In order to have a chance at navigating their way through a disruption, boards must be able to recognise and identify the issues they are facing as quickly as possible.

A recent report, researched by Alvarez & Marsal and Henley Business School, has analysed the real life experiences of more than 70 seasoned UK executive and non-executive board directors, who have led companies under the most difficult circumstances, including Thomas Cook, BAE Systems and Skype. The research has revealed that a clear-headed approach and a willingness to accept and confront the weaknesses within a business, is absolutely critical in a challenging situation.

An effective board must create an environment which allows and encourages directors to raise and discuss uncomfortable and sensitive issues. Without fostering the right sort of culture, action is unlikely to happen, and, if it does, it can often be too little, too late.

During unplanned and unpredictable situations, as occurs with disruptions, it is also important to have the right people at the helm. During extraordinary disruptions, role boundaries often change as required by circumstances and boards must not be too precious or sentimental when it comes to their responsibilities.

During a time of disruption, it is the chairman of the board who is often called upon to assume a stronger leadership role, displaying more overt leadership than required in the steady state. Chairmen are often the catalyst for boards to "call out the issue" and have a critical role in maintaining strategic leadership and alignment at times of discontinuity and uncertainty.

Of course, identifying the nature of the issue and the type of leadership it requires are just initial steps in the process for boards. Based on our research, we have compiled a number of practical guidelines that can be used as a route map in extraordinary situations. Underlying any recovery framework, however, is the fundamental point that this is not “business as usual”. It is the ability to adapt in a timely and collaborative fashion, and make the necessary fundamental, rather than incremental, changes that will turn a crisis into an opportunity.

Meanwhile, boards of businesses large and small are under increasing pressure to perform and recent corporate scandals have highlighted the need for greater transparency about board operation and decision- making.

Malcolm McKenzie is a managing director at Alvarez & Marsal.

This article originally appeared in Real Business.