Financial uncertainty increases risks for management – Make sure you can answer the questions who, what and why

During this exceptional time, companies must make decisions and find solutions faster than usual. Actions to secure operations and future success, including the related risks, are, from time to time – and especially now – essential. In order to avoid significant harm to the company, it may be necessary or justified to take risks that would not otherwise be taken. At the same time, the risk of making mistakes increases.

For this reason, during this exceptional time, issues of responsibility that face management have now also surfaced in various contexts. If a mistake occurs in the company and it is not feasible or adequate to hold the company itself responsible, criticism is easily directed at the Board of Directors and executive management and, to an increasing extent, also the company’s legal department, among others.

A business decision may prove to be erroneous in the subsequent evaluation. This does not necessarily mean that management acted incorrectly. However, management must be able to reliably indicate that decisions have been made in the right place, at the right time and that there are clear and documented justifications for those decisions and solutions.

The following practical advice may, in its simplicity, be the key for a company to make and dare to make decisions that are both timely and required by the circumstances.

Clear division of tasks among management, the Board of Directors and others in the organisation

Make sure that the assignment of tasks among individuals, both in company management and on the Board of Directors, is clear and carefully documented. The Board of Directors and the CEO can, and often they should, delegate their decision-making power to others in the company’s organisation. Such delegation of tasks and powers should be clear and documented, especially when those tasks are of great importance to the company’s business operations.

Drafting and adhering to internal operating principles

Make sure your organisation knows what to do in different situations. Among other things, it is important that members of the organisation feel they can raise issues with management as early as possible. For example, it is often the case, and quite unnecessary, that growing disputes are treated as “internal matters of a project” and are therefore not reported to management early enough. Especially now in these exceptional circumstances, it is particularly important for management to be kept up to date with how things are going in order to ensure that the necessary actions, such as written statements, are taken in the right form and according to the right timetable; while, on the other hand, this ensures that measures contrary to the company´s legal position are not taken.

Documentation of decisions

Make sure you can demonstrate why and on what grounds a business decision was made. Justify, document and provide the background for decisions carefully.

In the event of possible disagreements at a later stage, it is often of central importance to know what was the deadline by which matters documented should have led to actions by members of management, been investigated or problems should have otherwise been addressed. Regarding the decisions made, it will be assessed, among other things, whether the decision was based on sufficient and appropriate information, whether the assistance of external experts was sought, whether there was a valid reason for relying on the information obtained and whether a rational and consistent decision was made on the basis of the information obtained, also taking into account objectively the assessments of the decision at the time.

Further information