Improving Board Performance in Disruptive Times
The 2020s are well on their way to earning the ominous label of a troubling, disruptive decade, but there remain viable opportunities amid the challenges. What is the board’s role in preparing the organization for “show-stopping” and potentially existential risks?
The Story: A global board survey conducted by McKinsey of approximately 1,500 corporate directors found that directors “are not pleased with their performance on risk management.” Only 7% of the respondents believe that over the past year their boards were “most effective” — the highest rating — at overseeing risk management, and only 40% report that their organizations are prepared for the next major crisis.
The questions: Why these responses and what do they imply for directors’ reputations and the board’s culture and processes for understanding risk and communicating with key constituencies and internal stakeholders about risk. What can boards do to increase their confidence in the organization’s risk management?
The why and the implications:
- Shellshock and fatigue from absorbing the continuum of disruptive events.
- Uncertainty looking forward due to the culmination of many factors.
- Lack of insightful and helpful data that give directors confidence that they are in touch with the market forces that matter.
- Emergence of mental health and fitness challenges at top to bottom of the organization. No longer a stigma, mental health is a harsh reality that requires recognition, empathy and attention.
Six things boards should be working on:
- Make it a strategic imperative to understand and focus on the pillars of disruption: Focus on customer experiences, employee loyalty, organizational culture and supply chains — and the digital interfaces that drive them.
- Focus on managing strategic risk through actionable dashboard reporting: Understand the critical assumptions underlying the strategy, identify plausible scenarios indicating whether one or more assumptions are no longer valid and gather actionable intelligence on indicators that give early alerts about whether those scenarios are emerging.
- Think long term when evaluating risk: Thinking about how longer-term risks could impact the organization can give directors a more forward-looking perspective.
- Pay attention to and manage reputational risk: Focus on strategic relevance and a strong commitment to quality, transparency, operational excellence and organizational resiliency.
- Support the CEO in strengthening the organization’s platform of trust and cultural alignment with a proactive lean into the moment: Sharpen the focus on human capital to manage talent and skills acquisition and retention, and refresh expectations, action plans and accountabilities for CEOs.
- Broaden and refresh the board’s perspective: Supplement insights from management and sustain the board’s institutional memory.
Final thought: Risk conversations are changing dramatically. So much is hitting the fan — and everyone is affected. This is the reality of our times, and it necessitates a different conversation in the boardroom. For directors, a digital mindset, actionable data, fresh and forward-looking perspectives, and a broader focus on agility, resiliency, accountability and key stakeholders will help improve performance in the boardroom.
For more about the board’s role in preparing the organization for “show-stopping” and potentially existential risks, read the article here.
(Board Perspectives — Issue 154)