7 practical steps CFOs can take to prevent a business crisis

Mishaps and disasters in commercial enterprises are more public than ever.

From the watchful eye of the 24-hour news cycle to the sometimes bashing tumult of social media users, mitigating commercial disasters has never been more difficult or crucial for a company's long-term future.

A crisis isn't only synonymous with large-scale oil spills and questionable advertising. For businesses, it can often come down to short-sighted spending patterns, ill-thought-out public relations, or poor IT systems.

Crisis management is crucial to a business's operations and reputation. The changing role of the CFO involves understanding how to address or prevent crises — by developing strategies to improve a company's crisis readiness.

Crisis management and the CFO

Crisis management helps entities and business leaders identify parts of a business at risk of a crisis.

According to Vantage Market Research, the global crisis management industry for the banking, financial services, and insurance sector alone was worth $12.5 billion in 2021 and could increase to $32.8 billion by 2028.

As companies ramp up their digitalised operations, business leaders, notably CFOs, are now finding their business management abilities (and reputations) challenged by many economic, social, and digital factors.

The COVID-19 pandemic is a case in point. This crisis added a new layer to the CFO's role — beyond finance, they were often required to tackle many real-time emergencies such as the health and safety of staff.

The changing nature of a CFO's role in a business was set out in a 2021 McKinsey global survey of CFOs, which identified a move to emphasising crisis management.

UK-based Alex Johnson, a consultant at specialist crisis management firm Insignia, has been consulting to vulnerable companies for many years. With a particular passion for stakeholder communication, she has developed training manuals and simulated role-play exercises for clients in the financial services and professional services sectors, including Just Retirement Group and insurer Ageas.

FM asked Johnson how CFOs could best prepare for a possible business crisis and operate should they find themselves in one.

Create a crisis-resilient culture

CFOs should not be afraid to stray from archetypal leadership traits and instead welcome outside help, Johnson advised.

"An organisation that adheres to good governance and is willing to learn from others and their own mistakes is crucial. It also creates an environment that makes challenges to the status quo acceptable," she said.

Endorsing that mindset is fundamental to navigating any crisis, she said.

Leaders able to realise their organisation's potential for crisis and invite help are "far less likely to be in the situation you're ultimately training to prevent", Johnson suggested.

Look outward

The accounting profession possesses many strengths in risk management. However, even the most prudent CFOs can sometimes fail to see the bigger picture.

Johnson's advice? Analyse crisis-resilient workplace cultures outside of finance. Many fresh ideas and novel ways of tackling a crisis can be found by looking outward.

Ultimately, a crisis requires swift, immediate action, regardless of the problem's nature, and finance can learn from other companies' experiences. "I would encourage a broader look from outside finance," Johnson said. "A broader perspective and a structure to follow rather than instinctually responding can go a long way."

Exercise your plan with colleagues

Asking your colleagues what they might do in specific scenarios can pay dividends. Johnson referenced several methods built around what are described as "desktop" and "tabletop" exercises.

She explained: "It's all about demystifying these methods, through simulated exercises, media training, and immersive role-playing."

Do these exercises well, and you'll know where your crisis maturity level stands, she said.

"Getting a group of colleagues around a table is nothing new, but adapting to a crisis poses a unique set of circumstances that requires regular practice to get right," Johnson said.

Using a variety of tabletop exercises and practising them at least annually makes effective responses happen automatically when crises occur or at least reduces disordered responses.

A consistent set of training methods will prevent hesitation and panic, Johnson suggested.

Case studies can also help. "CFOs would do well to analyse similar case studies or even a competitor's role in a crisis," she said.

"There is a process to crisis management. The less you think about the process [when the crisis hits], the more time you can invest in setting the strategy and making the big decisions."

Acknowledge everyone around the table

Getting the right people around the table is key. But how you engage with them is another skill entirely, Johnson suggested.

"People need to leave their egos at the doors," she said. "The most experienced CFOs won't always have the answers. So, supplement your table with people relevant to the incident/potential dangers."

If you've built a resilient culture, seeking and accepting others' input is easier, she said.

"You need to be comfortable being … inclusive and realise you're facing adversity," Johnson said.

Take a military approach

Johnson offers a further takeaway. A military approach — literally.

Main Effort, a combat concept that concentrates efforts on objectives most likely to garner success on the battlefield, has been used in crisis-management circles for decades.

This principle can be adapted for when a crisis hits your business. "If you have 100 man-hours, how will you spend 80 of them? What are your top priorities for attention? It ultimately comes down to asking yourself what matters most in times of peril," she said.

Don't assume you have the answers

It's always good to be self-assured and confident in your ability to lead a business, but anything beyond that can create a sense of invincibility.

"Leaders who are overconfident or think that their view is the only one that counts are in danger of making poor decisions," Johnson said.

No one has all the answers, and no company is immune to crisis. Answers to the crisis may come from different areas of the business. "Sometimes it's simply a case of giving other members of the team permission to speak up," she said.

Maximise your cybersecurity efforts

Cyberattacks are commonplace and a top risk. Therefore, budgeting for and investing in attack-proof business software is vital, Johnson said.

But attack-proof doesn't mean invulnerable. "Don't assume it isn't going to happen," she stressed.

"Get experts around the table to help you interrogate key cyber risks and explore the worst-case scenario for a cyberattack," Johnson said. "Understanding your vulnerabilities and what you need to do to be better prepared means that businesses are less likely to be scrambling should a crisis occur."

Johnson suggested creating a contact list of partners and advisers who would support you in the worst case ahead of a crisis. Time spent now will save valuable minutes when you need them most, she said.

"Also, identify single points of failure in your crisis response. For example, what will you do if you only know one IT engineer and they're on holiday? Make the most of the luxury of time and plan well."

Alex Johnson is speaking at the AICPA & CIMA ENGAGE Asia Pacific virtual conference, held 1–2 November 2022, on "Crisis Management: How to Successfully Navigate the Worst Day of Your Business Life".

— Hugo Johnson-Driscoll is a content writer at AICPA & CIMA. To comment on this article, contact Oliver Rowe at Oliver.Rowe@aicpa-cima.com.