September 24, 2018
September 24, 2018
Most risk information presented to the board is “just not getting to the point.” This was one of the clear messages from research conducted four years ago by Marsh & McLennan Companies, the Association for Financial Professionals (AFP) and the NACD. Yet discussions among commissioners for this year’s forthcoming NACD Blue Ribbon Commission report, which will be released at the organization’s Global Board Leaders’ Summit in October, highlight directors’ continued frustration with corporate risk management—especially with respect to the threats posed by disruptive risks.
With the prospect of generating significant discontinuities and disturbances—and stemming from political, technological, or other forces—these risks may profoundly compromise key strands of a firm’s commercial activity and possibly even curtail the viability of the entire enterprise.
If the prospect of a single disruption is problematic enough for business leaders, the continued turbulence that characterizes the business environment of today can sap decision-making. It’s hard to sift substance from froth in terms of key warning signals, and according to a 2018 report by Marsh & McLennan Companies’ Global Risk Center, it may be even more difficult to know how and when to respond at a time of high uncertainty or constant change.
Information deficits and analytical challenges complicate the task of bringing together external data points with planning assumptions and operational exigencies. But cultural and institutional factors within firms can also inhibit receptivity and responsiveness to new threats by executives and directors alike.
Against this backdrop, boards must help set a tone from the top by making engagement with potential disruptions a clear governance responsibility. Three imperatives stand out.
To fulfil their responsibilities properly, directors must look carefully both at themselves and at senior management. Boards not only need good intelligence on disruptive risks and the right forum for discussing early warning signals and strategic implications; they also need a modicum of creative friction that prevents groupthink. Likewise, they need to see a chief executive who is not adhering to last year’s strategic assumptions or risk assessments and a chief risk officer with sufficient business acumen and communication skills who can champion this agenda and exercise a suitable challenge function with executive colleagues. This provides a strong cultural starting point for the board while it is overseeing how management navigates business opportunities in a fast-changing world.
Alex Wittenberg is executive director of the Marsh & McLennan Companies Global Risk Center and is recognized by NACD as a Governance Professional honoree of the NACD Directorship 100.