In the world today, corporate crises are no longer potential threats, they are inevitable realities. Crises can emerge from a variety of incidents, including the exit of a Chief Executive Officer, data breaches, financial management, executive misconduct, economic recessions, natural disasters, pandemics like COVID-19, and changes in regulations. Regardless of the origin, crisis is intrinsically destabilizing and has the potential to erode the foundation of a company’s operational integrity and reputation.
A corporate crisis is a significant event or situation that poses a serious threat to a company’s long-term viability.¹ It can potentially cause major disruptions or long-lasting damage to a company’s image and success. Such crisis can cripple business operations, disrupt corporate culture and irrevocably tarnish the reputation of the company leading to significant financial, legal and regulatory consequences.

When crisis looms, corporate governance is the board's ultimate weapon. It is not merely a passive function, but a dynamic, strategic tool wielded by the board to navigate through the storm of crisis. It is, in fact, the defining force between the dissolution of an enterprise and its capacity for reinvention. Strong governance, rooted in the bedrock principles of accountability, transparency, and ethical responsibility, is indispensable to the architecture of effective crisis management. It serves as both the conceptual and operational framework upon which a company can pivot, adapt, and emerge from crisis stronger and more resilient.

The role of corporate governance in board crisis management

Corporate governance is the system by which companies are directed and controlled. The board of directors as the apex decision making body, is vested with ultimate responsibility for the governance of the company and the direction and management of its business.² In this regard, directors are at all times required to act in what they believe to be the best interest of the company so as to preserve its assets, further its business and promote the purposes for which it was formed, and in such manner as a faithful, diligent, careful and ordinarily skillful director would act in the circumstances.³

Under typical circumstances, governance provides strategic direction and ensures compliance with legal, ethical and fiduciary duties. However, in the context of a crisis, its role transcends routine oversight, becoming a critical, operational instrument for steering a company through chaos.

Effective corporate governance is built on the principles of fairness, accountability, transparency, and responsibility, which are especially critical during a crisis. When a crisis occurs, these principles become not just aspirational ideals but imperative guides to action. The response of the board must thus be anchored on these principles, particularly as Section 305 (3) of the Companies and Allied Matters Act 2020 (“CAMA”) requires directors to at all times act in what they believe to be the best interest of the company and to preserve its assets, further.

Principle 27 of the Nigerian Code of Corporate Governance 2018 recommends transparency in communication with stakeholders.⁴ It is thus essential for boards to engage proactively with stakeholders during a crisis, ensuring that communication is clear, accurate, and consistent. This engagement is critical in maintaining informed decision-making across the corporate ecosystem. Transparency and accountability, when effectively coupled with decisive action, allow the board to mitigate the potential fallout from a crisis and facilitate the rapid deployment of crisis management strategies.

A crisis will undoubtedly test the robustness of a company’s framework. It is a stress test of not only the structures and processes in place but also the resilience of the leadership in maintaining focus amidst turmoil. Well-established governance frameworks provide a sense of continuity, ensuring that the company remains committed to resolution and effective damage control. Strong governance equips the board to respond strategically and swiftly, safeguarding both stakeholder confidence and the long-term integrity of the company.

A well-constructed governance model must ensure that decision-making is agile, effective, and transparent. In times of crisis, the governance framework must enable quick, informed decisions, establish clear lines of accountability, and facilitate the coherent execution of crisis management plans.⁵ The board, while maintaining oversight, must collaborate intimately with management, ensuring that the corporate response is not only swift but strategically sound.
The board’s responsibility extends beyond crisis reaction; it includes the formulation and implementation of robust risk management strategies that anticipate and mitigate potential threats before they manifest as crises. The risk management framework should be iterative, continuously refined through regular reviews and updates. This proactive stance enables companies to identify latent risks and adapt to a rapidly changing environment. The board must ensure that risk management practices are woven into the very fabric of corporate governance, providing a systematic and preemptive approach to crisis management.

Proactive risk management and governance: A strategic imperative

Corporate governance is an ongoing process of calibration and adaptation. A central facet of effective governance is the establishment of a comprehensive risk management framework, one that systematically identifies, evaluates, and mitigates emerging risks before they evolve into crises. In this respect, governance should not be reactive but anticipatory, equipping the company to navigate volatility with foresight and precision.

The research findings from PwC’s 2021 Global Crisis Survey underscore the critical importance of preparedness in crisis management. Companies with established crisis management capabilities were notably more adept at navigating the challenges posed by the COVID-19 pandemic, demonstrating that companies with strong governance structures were better positioned to respond swiftly and effectively to unforeseen disruptions.⁶ This empirical evidence reinforces the notion that robust corporate governance frameworks are integral to cultivating the resilience necessary to thrive in times of crisis.

The Board must ensure the company's risk management framework includes robust crisis prevention and management strategies. To mitigate crisis effectively, the Board must also be responsible for formulating policies and collaborating with Management to ensure proper implementation. The Board should also provide oversight, ensuring that management adheres to the risk appetite of the company and risk management framework.

Furthermore, corporate governance involves establishing proactive risk management procedures to identify, assess, and mitigate potential crises. Regular reviews and updates of procedures prepare the companies for the inevitable, allowing them to anticipate and address issues before escalation.⁷

Conclusion

The corporate governance of a company is truly tested during unforeseen risk and crisis. For boards, crises are not hypothetical contingencies but inevitable occurrences that require preparedness, strategic foresight, and disciplined execution. The survival, recovery, and long-term viability of the company rest upon the efficacy of its governance response in such times of peril.

With a strong governance structure in place, companies can make rapid, informed decisions, communicate transparently, and execute crisis management strategies with precision. Effective governance demands that boards balance accountability with agility, ensure clear and open communication with stakeholders, and act in the best interests of the company and its broader ecosystem. By embracing these principles, boards can convert crises into opportunities for renewal, transformation, and sustained growth, ultimately enhancing corporate resilience and fortifying the company’s position in an increasingly volatile and complex business environment.

At Adcax Corporate Services Limited, we pride ourselves in supporting our clients' business in navigating the intricate landscape of corporate governance. From navigating regulations to establishing sound structures ensuring seamless compliance, our expert team is here to guide you every step of the way. Let us ensure your business operates with transparency, accountability, and long-term success in mind. Reach out to us today via email at adcaxnominees.nigeria@dentons.com to learn how we can assist with your corporate governance compliance issues.

1. The Board’s Role in Crisis Management, Osler, Hoskin & Harcourt LLP
2. Section 269(1) Companies and Allied Matters Act 2020. Brian Coyle and Trina Hill (2017) ICSA Study Text Corporate Governance.
3. Section 305(3) Companies and Allied Matters Act 2020
4. Principle 27 of the Nigerian Code of Corporate Governance 2018 (NCCG).
5. What role does corporate governance play in crisis management and business resilience? - Corporate Governance
6. https://www.pwc.com/ia/es/prensa/pdfs/Global-Crisis-Survey-FINAL-March-18.pdf
7. Principle 15 of the Nigerian Code of Corporate Governance