FROM black swans to grey rhinos, the risk universe today is expansive, complex and interconnected.
Black swan events – or unknown unknowns – are potentially catastrophic events that are rare, impossible to predict and outside our control. Grey rhinos – or the known unknowns – are more plentiful and expected and often charge at us in plain sight with a significantly wide impact.
The latter would be what boards should prioritise and think of more proactively in enterprise risk management.
Amid the usual suspects of financial, cybersecurity, reputation, compliance and competitive risks, companies are in recent years also facing increased pressure to deal with risks relating to climate change and sustainability, compliance, supply chain and global geopolitics.
The burden on boards and emphasis on governance have also accordingly increased.
According to the EY 2023 Global Board Risk Survey, which surveyed 500 global board directors from organisations with revenues of over US$1 billion, less than a quarter of the boards covered are considered highly resilient.
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Highly resilient boards are confident and respond to unexpected high-impact incidents better. They are more likely to be highly effective in aligning risk and business strategy.
Far from complacent, these boards are cautious about gaps in their preparedness and are aware of the evolving nature of the risks they face.
By focusing on the following key areas, boards can better support their organisations in prioritising resilience.
Anticipate emerging and material risks
Enterprise resilience is more about adapting to the risks than recovering back to normal. This prioritises the task of anticipating, preparing for and adapting to both emerging and material risks.
To do this effectively, boards and the management need to look beyond the obvious and near term, and dedicate time to discuss changes and trends observed in the market.
Technology such as artificial intelligence (AI) and advanced analytics to scan the horizon for any black swans and grey rhinos can help.
Applying quantitative analyses to specific scenarios can also enable the board and management to better understand the organisation’s full exposure to these risks.
The board and management can also consider if the current business strategy and model remain viable amid emerging risks, or if an adaptation is needed.
Strengthen oversight of talent and culture
Talent shortages, ongoing workforce transformation and the competing needs of a multi-generation workforce are longstanding issues that companies have had to deal with.
The need for flexible working together with a misaligned culture are increasingly becoming central to the talent risks that organisations face.
Further, in a fast-changing technological landscape, the workforce needs to be equipped with future-ready skills.
Boards need to support management to identify and meet the organisation’s business-critical talent needs and create organisations that can adapt to changing expectations around culture, skills, and diversity, equity and inclusion.
With improved knowledge, flexibility and oversight, they can support management to develop the human-centred culture needed to achieve this.
They can also challenge management to build a pipeline of leaders who live and breathe that culture.
Act on climate change
The connection between environmental sustainability and business resilience is indisputable, and companies are facing heightened expectations from multiple stakeholders.
These include investors, who want to know more about the organisation’s environmental, social and governance (ESG) performance, against the short-term earnings and longer-term investments in sustainability.
At the same time, authorities want transparency in sustainability disclosures and evolving standards – such as the recently released IFRS S1 and IFRS S2 by the International Sustainability Standards Board – are giving lesser leeway for ambiguity in sustainability reporting.
Yet, this is also a valuable opportunity for companies to demonstrate their progress in sustainability performance beyond compliance.
Highly resilient boards are both more aware of material sustainability issues and more comfortable discussing them.
That is usually the result of assigning and creating accountability over ESG risks – whether it is a committee that takes the lead or the whole board.
Boards can also enable investor trust by overseeing robust processes for collecting, managing and disclosing trusted data to comply with regulations.
Where talk does not translate into actions, boards should challenge management on its plans and commitment.
To discharge their roles well, improving board knowledge and skills in sustainability is vital.
Understand risks from emerging technologies
With breakthroughs in generative AI technology, the advent of the metaverse, growing and cyberthreats, the goal posts in dealing with digital technologies are shifting fast.
As organisations invest more in digital technologies, the board and management will benefit from having the expertise to identify potential technology opportunities and risks.
Of course, their job is not to be experts, but to make sure the organisation is balancing the speed of technology adoption with risk appetite and exposure.
To this, boards should work more closely with the management to be kept abreast of key investments in technology, digital transformation and cybersecurity.
Cyberthreats and digital risks are an enterprise-wide concern – and this tone needs to come from the top.
To that end, driving management to prioritise education and upskilling of employees on digital – and recognising that managing digital and technology risks is not just the remit of information technology – is key.
In an increasingly complex world, organisations need to be better prepared for long-term risks. Like in a zoo, to see the animals in the context of their environment clearer, one will need to stand back a little further.
For boards, that clarity from the top and front is non-negotiable.
The writer is EY Asean Regional Managing Partner, and Singapore and Brunei Managing Partner at Ernst & Young Solutions LLP
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