I am going to offer some reflections on the implications of the Covid-19 crisis for boards and risk management, especially for new or aspiring Non-Executive Directors. (NEDs). I start with some basic principles to set the framework, then consider the current situation, and address the longer term. I will end with some guidance for aspiring or fairly new Non-Executive Directors.
Boards and Risk Management basics
Risk is, of course, at the top of everyone’s agenda at the moment.
Risk has been defined as the “effect of uncertainty on objectives”. And don’t we live in uncertain times. This places it fair and square on the boardroom table.
Throughout our careers we have all dealt with risk. Whatever your job there has always been some form of risk management; most of the time intuitive drawing upon your knowledge, skills and experience. Sometimes its been more structured. The basics are well known; identify, assess, act and monitor and review is a common structure. Impact, likelihood and timescale are commonly used in any assessment.
At the Board level we see that risk management should be closely linked to strategy development. Risk and opportunity sit in tension. Risk management is often seen as a “necessary evil” but if approached in the right way it can actually be a key to unlocking competitive advantage and/or quality improvement. Indeed, there should not really be any question about this for the forward looking Board!
Covid-19 has presented unheard of challenges to every organisation; company, public body or charity. But its not the only one; the climate emergency has not gone away, political risks such as terrorism will continue and a no deal Brexit is looking increasingly likely. A significant downturn in the world economy is already underway. Organisations that best anticipate and manage risks will be more likely to survive and prosper. Boards that had effective risk management processes in place; annual review, scenario planning, risk registers and “heat” maps, for example,e are more likely to have the mindset to cope with this crisis.
For guidance on how to manage big picture global threats former US Secretary of State Codoleezza Rice teaches at Stanford with a colleague Amy Zegart and they have recently published a very practical book, “Political Risk”. Their framework has a format of “understand, analyse, mitigate and respond.” with twelve key questions for every organisation.
Risk in the Crisis
According to Boston Consulting we will move out of the “Flatten” (the curve) phase into a “Fight” phase when we restart societal and business life and then move into the “Future”. “Response”, “Recovery” and “Resilience” is another model that’s being used on the not for profit and other sectors.
So the UK is now coming our of the “Flatten” stage of this crisis. Organisations will have had to move out of “steady as you go”into crisis management mode. Whilst they cannot directly influence the cause but they must deal with the risks arising from the consequences, some of which are clear; others slowly emerging. Ways of working have changed in a few days. Capacity has been removed due to furloughing staff. Some companies are not operating. A minority have prospered if they have been to respond to the new situation and this has brought new risks, for some of being overwhelmed by demand. The Executives have had to lead the response to this massive change in how society operates.
Using the popular stakeholder analysis model there has clearly been a move towards putting staff first; their safety the prime concern. Whilst not forgetting all the other stakeholders – such as shareholders, regulators, customers – they have had priority at this time.
Organisations will be remembered for how they responded to the vulnerable in our community; not just as another bit of corporate social responsibility but how they genuinely responded to a crisis.
Non-Executive Directors have had to move from the oversight role to one more of support for the Executive Team and staff more generally. However, this does not mean stepping away. Accountability arrangements need to be maintained and assurance sought regarding the response of senior management.
The chair’s support for the CEO is especially important. Management Today have reported that CEO’s are feeling even lonelier at the top. With colleagues working from home, they are bearing the mental strain of being the hub for virtual communication. Some will be facing unprecedented stress. The quiet word of encouragement goes a long way.
One practical suggestion is that Execs could be prompted to make the time once a week, even for 15 minutes, to record lessons learnt both for the organisation but also for themselves. Infact, so should NEDs. Reflective practice has never been more important.
Post Crisis – The longer term
So what about the longer term. Even as we move through the “response” phase the Board needs to begin thinking about the transition to a full re-opening of the economy and communal life. The future will not be like the present or the past. The Board needs to think systematically to ensure the future of the business or organisation as we move beyond the lockdown. One of my Boards is at the same time trying to deal with an operational issue with major financial consequences and at the same time has initiated strategic discussions on core purpose and has already engaged at depth and with honesty with external partners.
Boards need to seek assurance on the management of strategic risk in the new world as it emerges.
They can undertake scenario planning of possible futures to guide their strategic decision-making. Ask all the big questions. What are the key trends? We might think this is a worse case but what is a 2nd and 3rd wave comes? What worked and can we keep? What do all our stakeholders need now? This is were systems thinking can be so valuable and the Board can take a “helicopter” view in developing a strategic response.
They should ask how can they build greater resilience to face the undoubted challenges that will come in this volatile period as we exit this crisis. This should include the Board itself. Is the current membership “fit for purpose” for the new environment? Effective boards will assess their performance. The Board should also ask about the risk management capacity in the organisation?
Aspiring NEDs – what can you do?
Finally, this period is one of great uncertainty for aspiring NEDs or ones seeking additional positions. Vacancies seem to have dried up at the moment but in time things will open up again. We should therefore be asking ourselves what will organisations be wanting in the future as there will almost certainly be be major change to their requirements.
I would suggest that Boards will look for those who understand the nature of the underlying changes affecting society and can help them to identify and respond to emerging opportunities in innovative ways. This is where system thinking can be valuable in seeing where actions can leverage results. How can you demonstrate this wider perspective?
Governance and Risk management will certainly be high on the agenda. So being able to demonstrate knowledge and experience in this area will still be important. Each of the sectors in which you might wish to work has its own policy framework for governance and risk. Use this time to explore the commonalities and differences; especially the nuances and specific areas of focus.
Can you answer these questions; how have risks changed in the sector in which you are seeking a Board role? How have the key players in this sector responded; especially the competitors to the company who are seeking a NED? What opportunities are emerging?
A particular danger to effective strategic risk management is “group think” – what is obvious to an outsider is not necessarily registered in what may be a closely-knit group who will have gone through this crisis together. Could you demonstrate when you have spoken out in a board or other situation; not in a combative and divisive way of course.
Digital has become the norm for service delivery in many sectors. Not only do we need to improve out tech skills in terms of your personal effectiveness but what will you bring to the digital agenda that will underpin so many of solutions to new issues that are emerging? There is lots of learning from simply reflecting upon how leaders and companies are responding.
This post is based on a “Linkedin Live” talk for In-Touch Networks in May 2020 and was first published as a Linkedin article