That’s All on You
Delivering Bad News to Your Board

By Lindsay Robison

People in the medical profession know that one day they’ll have to deliver bad news to a patient or to that patient’s family. If you’re reading this, you’re probably not a doctor and you may be wiping your forehead thinking you’re glad you’re not. But don’t be too quick to consider yourself off the hook. Unfortunately, no one seems immune to delivering bad news at some point in their lives or careers.

If you’re an executive, the responsibility of delivering bad news about your company’s business operations, or delegating to another to deliver it, falls on your shoulders. While you can probably assign a lot of the sharing of bad news – layoffs, pay cuts, and the like – to your company’s human resources professionals or other department managers, when it comes to telling bad news to the company’s board of directors, well, that’s all on you.

Delivering bad news is never an easy task. Neither is hearing it. In fact, both the givers and receivers of bad news have emotional reactions to it. It is a source of stress for both parties, and stress triggers the body’s hormones to help the person cope with the feelings stress causes. According to the Centers for Disease Control, the hormones produced when a person feels stress explain why people’s hands get cold, mouths get dry, hearts pound, brains can’t concentrate or won’t let them sleep, and anger rises.

Despite the knowledge of stress responses to giving bad news, most in the medical profession say they don’t have formal training in how to tell people things they don’t want to hear. In fact, a study appearing in the medical journal The Oncologist reported that only around 10 percent of doctors surveyed reported having had any specific training.

So where does that leave you? Probably even more squarely set in the high percentage of people who have never had anyone tell them how to handle breaking difficult news or the stress that comes with it.

In the current economy, more likely than not if you haven’t already had to tell your board some not-so-good news – whatever it may be – you will sometime soon. If you have an engaged board of directors, they might have even seen it coming and could even be prepared to hear it. “We live in an imperfect world,” said Michael Bechara, managing director of the Brewster, New York-based Granite Consulting Group, a corporate governance, risk, and financial management consultancy. “Business doesn’t always run smoothly and people don’t always communicate. So from time to time there are going to be things [board members] didn’t see coming. But for the most part, if it is a major problem, they aren’t going to be all that shocked.”

Stuart Henderson, president and CEO of Western National Insurance Group in Edina, Minnesota, recently had to head into the boardroom to share some news he didn’t want to and he knew the board wouldn’t want to hear. Last year – 2010 – proved to be the first in almost a decade that Western National faced an underwriting loss.

“The last time we had this size of an underwriting loss was December 2001,” Henderson said. “We still made a decent amount of money after investment income, but the board was very used to constant underwriting gains on top of investment returns. So I consider that ‘bad news’ to convey to them.”

Because of Western National’s board members’ involvement and knowledge of what goes on with the company, it wasn’t a surprise to them that Henderson would be delivering the news. Henderson knew that the board wouldn’t react irrationally to the news, but he was still concerned about communicating it with them.

To squelch rumors or speculation, the board should be told about the news as soon as possible. But you also must make sure you have enough information to allow you to, in Bechara’s words, “not beat around the bush.”

At times, telling the board as soon as possible might mean that every single detail isn’t worked out when the bad news is given. But, as Bechara says, every last detail isn’t necessary unless the board asks to know. “The Art and Science of Delivering Bad News,” an article appearing in one of actuarial and consulting firm Milliman’s Benefits Perspectives newsletters in 2009, advises having a communications plan. “Know the ‘who, what, when, where, how, and why’ of the communication before the first announcement is made … ” said Denise Foster, an employee communications consultant and the article’s author.

And tell the entire truth. “I think it is better [to just lay it out],” Bechara said. “The failure I witness a lot is there are people who don’t want to say it. They start beating around the bush and then the agitation starts right away. The second thing I see is the person who wants to say it but starts from the wrong end.”

Those people, Bechara says, try to explain the entire situation first, giving an overabundance of details. “Start with the newspaper headline first. ‘We’ve had a $10 million loss. The reasons for the loss are A, B, and C. To prevent them in the future we’re going to do D, E, and F.’ Then stop,” Bechara iterated. “From there on out [the board will] let you know how much detail they want by the questions they ask. If they don’t ask any more questions, they’re satisfied. If they want more data, you can provide it as needed.”

Jean Palmer Heck, president of Real-Impact, Inc. and professional speaker who advises people on how to give tough talks, agrees. She says that because of the physical reaction to bad news, the deliverer of the news needs to know when to stop and let the listener absorb. But she also says that with boards, because of their professional background and business savvy, the absorption-reaction process might go faster.

“If they saw [the news] coming, it is a matter of the cold, hard facts,” she said. “There will be reaction, but the time to process isn’t as long. They have a lot more experience by that point in their lives, and they are not thinking as much in terms of what it means to them individually; they’re thinking about the company as a whole.”

While the physiological reactions the board members experience might not be as severe as an employee hearing bad news, your reactions as the executive and the giver of bad news – sweaty palms, butterflies in your stomach, sleepless nights – might be worse in this instance. This is probably because when giving bad news to the board, you’re technically giving bad news to your boss.

Chris Brown, president of Upland Mutual Insurance in Junction City, Kansas, has had the displeasure of relaying information he didn’t want to, including personnel, operational, accounting, and reporting issues and changes, to his directors/bosses.

“Repeated financial losses are always [difficult],” he said. “One hit may be okay, another little one is all right, but by the third one you’re starting to feel like you have a dark cloud over you. You walk into the boardroom feeling like you’re carrying a sickle and wearing black.”

While he says he has never gotten a round of applause after telling his board bad news, he does say he is “blessed to have a great board of solid businesspeople who understand we’re doing everything we can every day to do what is right for the policyholder.

“It’s not that they aren’t disappointed at times,” he continued, “but, generally, they want to pick it up and know where to go from there. They understand business and that as a property/casualty insurer we can’t stop the wind and hail.”

Because of the nature of the insurance business, bad news seems inevitable. But breaking bad news doesn’t have to break an executive, a board, or a company. In fact, a study featured in a 2009 issue of Management Science discusses the silver lining effect in bad news. It says to tell some good news within the bad to help soften the blow. That is what Western National’s Henderson did when he reminded the board that the company still made money despite the underwriting loss in 2010.

Granite Consulting’s Bechara says there is another silver lining in bad news. “It is an observation of how well the CEO handles the pressure cooker,” he commented. “So you had some bad news, how did management do? Did they fall apart or did they step up to the plate and calmly, coolly, rationally handle the situation?

“It could also be a wake-up call,” he continued. “It is an opportunity to strengthen your processes, to refocus so you don’t get the big bomb in this area down the road.”

Upland Mutual’s Brown looks at it this way as well. He says a person or company never gets more than it can handle and that the bad news is a learning opportunity. “Corporate intelligence needs to grow as you go through [business cycles],” he said. “You need to be able to look back and reflect that it didn’t work or, in hindsight, that next time we need to [fill in the blank] to fix the problem.” Which means telling bad news now might mean avoiding some not-so-inevitable bad news in the future.

Posted: Thursday, March 17, 2011 4:15:56 PM.