Anticipating emerging risks means reshaping the board.
Risk management is often cited among the top two or three items on board agendas, yet many companies have found themselves unprepared for a variety of recent shocks, including the COVID-19 pandemic, the Great Resignation, cybersecurity events, labor shortages and supply chain disruptions.
The breadth of risk for public and large private companies has grown exponentially in recent years, but few organizations have gone far enough in evolving and expanding their risk management approach to keep up with the pace of change. This is one reason regulators have stepped up enforcement of board requirements around fiduciary duties.
In some cases, boards may need to update their views about the world’s ability to deal with risks. These views may include the expectation that supply chains are infinite, labor is unlimited and the United States is always able to innovate its way out of problems.
That’s not the world today’s companies operate in. World Economic Forum, the Control Risks global risk survey, McKinsey and others have identified several of the most significant areas of current and emerging corporate risk. The top risk areas include:
- Proper understanding and articulation of company risk appetite, risk review objectives, and existential and emergent risks.
- People and talent.
- Mergers and acquisitions.
- Digital transformation.
- Cybersecurity.
- Climate risks and action.
- Future pandemics or similar situations.
- Supply chain vulnerabilities.
- Regulatory risks.
- Political risks.
These risks present challenges on many levels. Boards must identify, assess and manage risks intelligently, while simultaneously focusing on business opportunities that may arise from the very same issues. They must communicate risks not just to shareholders, but also to other stakeholders.
Today’s boards need to consider whether they have the right people, expertise, committees and processes to address today’s higher-risk business environment. Crises are likely to come faster and hit harder. However, boards that make changes to better address risk can succeed in making their companies more resilient.
The following are changes boards should consider to enhance their risk management approach and better help their companies navigate and mitigate emerging risks.
Read more at Rethinking Risk Management
Subscribe us to get updates and leave your comments below
