Boards are becoming more concerned with an increasing amount of risks, according to the most recent EY Global Board Risk Survey. The list of ongoing risks — which included technology adoption and digital disruption — now includes geopolitical crises, supply chain upheaval, and remote working. These threats are also becoming more intertwined, and Boards need to build and encourage resilience in order to help organizations identify, assess, and successfully address them.
CHARACTERISTICS OF HIGHLY RESILIENT BOARDSHighly resilient businesses succeed because they can adapt, pivot, and prepare for potential and likely events (known as “gray rhinos”), even those that are beyond their control. Boards serve a crucial monitoring function by questioning presumptions and presenting thought-provoking “what if” questions. While boards cannot be expected to foresee which gray rhino is coming towards them, they can definitely set the tone to get ready.
Some boards consider risks to be “black swans,” which are defined as unpredictable events that have a significant impact, such as the COVID-19 pandemic or the 2008 global financial crisis. The concept of risks as known unknowns, or gray rhinos, gives highly resilient boards an edge, and they adapt their behavior in response to these risks.
The following characteristics of highly resilient boards are:
1. Informed confidence – Highly resilient boards are aware that management has the right systems, processes, and governance frameworks in place to scan the horizon and detect known, emerging, and interconnected risks — and they understand how these risks will impact strategic business objectives.
2. Agility – Resilient boards take a highly discerning and cautious view of their organization’s level of preparedness to respond to interconnected and ever-changing risks. They question and challenge confirmation and groupthink bias. According to the Global Risk survey, highly resilient boards are 1.6 times more likely to be confident in their ability to respond to unexpected high-impact incidents.
3. Humility – Highly resilient boards accept that both they and their organization need to continually update their skills and keep learning to ensure they keep an eye on the horizon while management keeps an eye on the ground in front of them.
Growing a high level of resilience is a joint obligation between management and the board, not just their task. There is space for improvement, according to the survey, since directors were less likely than CEOs to assess their firms as robust in a number of different categories.
KEY CONSIDERATIONS FOR BOARDSThe survey shares that resilient boards are 1.8 times more likely to have high confidence in their organization’s data management procedures and technology risk framework, and 69% of boards have previously stated that they intend to increase their level of investment in data and technology for risk management. Modernizing governance and the use of technology in upskilling will be essential in building resilience.
The board should also keep in regular contact with C-Suites, especially the chief risk officer (CRO), given the many new and increased problems at play and the growing complexity of the risk landscape. Only 57% of board members said they regularly meet with their CRO when we asked how frequently they interact with C-Suites roles.
The increasing significance of the CRO and the necessity of CRO and board collaboration were topics covered by EY teams in the poll for 2021. This is still the case, and some people are now calling for the CRO to be permanently added to the board’s agenda. Whatever the topic, boards need to move away from the conventional perspective of risk management and mitigation and keep the following key considerations in mind:
1. Encourage a resilient culture – After disruptive occurrences, highly resilient boards put more emphasis on adjusting to the new reality than on getting back to business as usual. They put special emphasis on fostering all-around resilience in a variety of contexts, including governance, talent and culture, sociopolitical considerations, environmental sustainability, and technology.
2. Keep up with disruption and emerging risks – Utilize specialized board insight and discussion sessions to continuously monitor and evaluate the changing risk landscape that could have an influence on your firm. You should also seek the counsel of outside experts. Make sure there is a basic understanding of risk frameworks, especially on how technology can be used, as this will provide the groundwork for a resilience attitude.
3. Enhance cooperation with C-Suites roles responsible for significant risks – Recognize the crucial role C-Suites play in efficient risk management and think about giving existing committees responsibility for material risks. Engage the CRO and those in charge of the most significant risks to the organization more frequently. If this isn’t done, the organization may miss some of the most dangerous hazards, such as those gray rhino risks that are charging right at it.
NAVIGATING RISKS WITH RESILIENCEWith the expansion and increasing complexity of the risk environment due to interconnection and accelerated disruptive shifts, boards can no longer simply react — they need to anticipate and adapt to emerging disruptions before they happen. By modernizing governance structures and adapting to emerging technology, they can improve their overall resilience to navigate risks and gain a competitive advantage.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co. and FINEX.
Wilson P. Tan is the chairman and country managing partner of SGV & Co. and the president of FINEX.