In speaking with directors and crisis management practitioners, the concept of having the right resources in place permanently, given the expectations for continued volatility and crises, came up repeatedly. For some this means a formal crisis management center capable of scanning for and responding to a variety of situations. For others it will mean allocating individuals and having advisors at the ready as part of risk management or operations. Regardless of the resourcing, directors are clear that in our time of permacrisis, even with tighter budgets, their organizations are well-served making crisis management part of ongoing business.
How boards are evolving approaches to resilience
It is noteworthy that, over the past year, leading boards and directors have been shifting their language and the lens through which they view crisis management to a broader and longer-term perspective. As one director who sits on multiple boards notes, “[At this point,] investing in resilience makes more sense than trying to anticipate the next crisis.”
This director is not alone. More boards are discussing and re-examining crisis oversight efforts to bring a greater resiliency mindset. There are implications here not just for management teams but boards as well and how they are including these discussions on a crowded board agenda. Given the board’s focus on long-term value and the threat posed by crises, approaches that can be considered include:
- Define risk appetite and trade-offs. The board can support management in its decision-making by clearly defining the guardrails for risk and crises to create clarity. While many boards talk about the need for having clear guardrails around risk appetite, few do it with a level of specificity that enables management to make more considered trade-offs.
- Reconsider risk oversight assignment. Risk committees can be valuable, and in 2022, 11% of S&P 500 companies disclosed that they have separate risk committees, with the majority of those in the financial services sector, where it’s required. Nonfinancial services boards typically delegate overall risk oversight to the audit committee, but oversight for specific risks is sometimes assigned to other committees. For example, talent-related risks may be addressed by the compensation committee, and environmental and social matters by the nominating and governance committee.
- Pursue diversity of thought. This was an area that directors emphasized as they considered how cross-industry and business cycle experience can prove helpful in identifying risks as they emerge. While boards are recruiting more directors with hot skills, such as cybersecurity, directors need not have a specialized background in these fields to raise valuable insights. Boards can strengthen their own resilience by creating a culture that allows directors to ask questions and challenge points, while maintaining collegiality. Some boards shuffle committee membership every few years to allow for new ideas.
- Support permanent resources. What’s becoming clear is the need for a combination of abilities to identify risks, then process and escalate them, and finally, communicate well with stakeholders. Where these skills reside and how resources are aligned – whether centralized into a crisis management center or embedded throughout the business – are questions the board can ask to confirm whether capital is allocated accordingly.
In today’s environment, boards play an important role in overseeing crisis management planning and are guiding management teams to look at the entire lifecycle of crisis response, not only to be ready to react to single or multiple crises but also to avoid the crisis in the first place. This highlights the mindset shift underway from crisis management to resilience, which is critical to long-term growth in a short-term volatile environment.