The Risk Coalition’s Risk Committee Chairs Forum convened on 24 March 2022 at short notice to discuss the implications for risk committees of the Russian invasion of Ukraine. The immediate and hugely tragic human consequences have, of course, been extensively reported; the impacts are being felt well beyond Ukraine’s borders. The roundtable was an opportunity for 15 experienced risk committee chairs to exchange views and share experiences of governing their organisations operating in crisis situations and under extreme uncertainty. The Risk Coalition invited an external specialist - a strategic, leadership and boardroom advisor who draws on 30 years' experience leading military and inter-agency teams at home and in international crises - to provide some background and set the scene. This blog sets out the key discussion points.
Crises – as illustrated by the invasion of Ukraine – clearly have profound and widespread consequences. And, typically and perhaps unsurprisingly, a plethora of ‘experts’ seem to come out of the woodwork in such circumstances, each proffering their own views and advice on the causes, predictability, implications and likely outcomes. But what should a board and its risk committee be expected to do in such unpredictable times?
It has not been uncommon, even in the recent past, for businesses to have viewed investing in ‘resilience’ as a business overhead. However, it is now readily evident that the current geopolitical situation affects us all through second and third order impacts. Businesses may have previously focused largely on the bottom line, assuming the darker side of geopolitics will not impact them; recent events have emphatically proven this not to be the reality.
Geopolitics matter to businesses, and resilience is now largely recognised as a critical success vector. Vulnerability analysis can be helpful in help a board understand which elements of the organisation need to be made more resilient: what can the business simply not afford to go wrong.
In fact, the discussion at the roundtable suggests that businesses need to go a step further than focusing on resilience. Readiness – a concept which goes beyond resilience – is now increasingly seen as a priority by boards.
Rethinking scenario planning
When evaluating risk, assessing probabilities is no longer regarded as sufficient given rapidly emerging risks and highly uncertain events. As a consequence, scenario planning is vital, looking not just at different outcomes in extreme but plausible circumstances, but also assessing the impact of previously thought-to-be-implausible scenarios in an attempt to reduce or eliminate possible positive bias. Any interconnectedness should be built into scenarios. The development of a geo-political risk management framework can also help bring rigour to the approach to scenario planning.
Although much scenario work can be undertaken as a desktop exercise, role play and ‘war games’ can also be instructive. These should involve the executives and as well as board members. One of the risk committee chairs at the roundtable said their board has set up a task force, comprising a subset of the board, to consider dark-side scenarios: it is important to think the unthinkable. Another participant emphasised the need for diverse input, not just from the chief risk officer, but from the heads of governance and audit for example. To be ready, boards need to have a playbook ready which they can rapidly roll out when a crisis occurs. To be as prepared as possible, boards need to be planning and taking actions when times are good, and not put preparedness off till times begin looking difficult. It’s all too easy to defer preparations and actions when there are short-term and urgent business priorities.
Ensuring a continuous conversation with stakeholders
The imposition of sanctions in a conflict situation is intended to impact the violator, but also can have a substantial impact on the countries imposing and enforcing the sanctions. An important question for businesses will be how sanctions go on to impact their stakeholders, in particular their supply chains. But boards should also be thinking about whether its key stakeholders understand the impact that the changing and challenging environment will have on them. How will employees be impacted, and how will customers be affected? It may be necessary to reassure key constituencies in these deeply worrying times and leadership needs to be mindful of the impact of the crisis on their people.
Boards and executives will need to consider stakeholder communications and the need to ‘educate’ their stakeholders so they understand the impact that the crisis has on the business any knock-on impact on their stakeholders. Key ethical questions - in this case, whether to continue business operations in Russia, for example – may need to be considered by the board and their executive team. Continuous conversation is essential, with all stakeholders, in order to develop readiness and enable agile responses as circumstances change. The conversation needs to recognise and listen to multiple perspectives and perceptions. A clear purpose and statement of values, along with effective stakeholder engagement, will facilitate resolving questions around who a board and the organisation should do business with.
Looking beyond short-term time horizons
A third factor is the need for the risk committee to give adequate consideration to the medium- and longer-term ramifications of the crisis and the decisions made by the board. Simply focusing on the urgent matters that short-term demands place on the business will not be sufficient. Thinking longer term in the midst of a crisis situation also reinforces the importance of scenarios – the duration of the crisis will be a factor to consider, and so too will be the aftermath. A range of different outcomes will be possible, so how will the board and the business respond in the event of each of these different outcomes materialising.
Final thoughts
Ultimately, though, it seems that an effective response to a crisis from a risk committee and its board will be underpinned by agility of thinking and action, and an enabled state of readiness. In the end, the biggest risk to an organisation and its board could well be complacency and a tendency to remain in their comfort zone, undermining the drive for resilience and readiness.
Hanif Barma is a co-founder of the Risk Coalition and partner at Board Alchemy. The Risk Coalition’s Risk Committee Chairs Forum has been set up as a professional forum for risk committee chairs (and equivalent) to exchange views and share experiences, network and learn from each other and from outside experts. To find out more, including about the dates of future events, see the Risk Coalition’s website.