Five ways to boost board resilience

Six-in-ten board members believe emerging risks aren’t being sufficiently addressed by the firm’s board. To boost resilience in the board room, EY has explained five key points of improvement.

Every three years, EY’s ‘Global Board Risk Survey’ benchmarks the views of 500 global board directors, from organisations with revenues over $1 billion. In 2023, unfavourable economic conditions and technological change have fallen from the top spots.

Instead, the three leading risks identified by board members were geopolitical events, supply chain disruption and cyber-attacks – each identified by 45% of respondents. Geopolitical events and supply chain disruption both saw the number of board members worrying about them as a top risk rise by more than 10%, too.

Despite this apparent alignment, however, EY also found that six in ten board members did not feel those emerging risks were being sufficiently addressed. This seemingly grows out of a belief of a similar number, who said their fellow board members were not on the same page regarding the top material risks that will have a significant impact on their organisations in the next 12 months.

With complex items like cyber-attacks and geopolitical uncertainty on the cards, however, this is a lack of cohesion few firms can afford. To that end, EY has compiled five best practices exhibited by the most resilient boards around.

Build strategies

The most resilient boards know risk strategies are crucial for success. An 86% majority of top-performing boards agree that they should review risk exposures as part of their strategy and performance reviews – compared to just 46% of the rest of the pack.

Boards can suggest that key risk indicators (KRIs) be embedded in the strategy to act as early warning systems that connect risks directly with performance. They can also guide management to set high expectations of their risk teams, such as asking if sensitivity analysis is being applied to the budgeting and forecasting process. Finally, they should integrate risk reporting into existing strategic planning and performance management reporting, and insist they discuss planning and reporting holistically.

Use corporate structures

Looking beyond the near-term to consider what pressures a company will face in the future is also an important part of board resilience. A 56% chunk of the most resilient boards look beyond traditional risk planning for the near-term, compared to 32% of general boards. That includes finding a way to embed that culture in the roles of a company’s executive roles and committees.

Boards could consider assigning responsibility and accountability for key risks to existing committees, such as compensation or risk. Or they could create new committees, such as sustainability and technology. Additionally, having regular contact with the most relevant CxOs can strengthen relationships and improve this cohesion for the long-haul.

Challenge management

Resilient boards are not shy of using technology to drive their decisions. While just 32% of all boards did so, EY found 59% of resilient leaders deployed data and technology to help them be predictive, and detect risks and opportunities quickly.

At the same time, deploying independent reviews from external consultants can also help. These organisational health-checks can help identify any inefficient, siloed processes, such as functions using different methods or systems. Management can then use the findings to align risk management processes so they are as efficient and effective as possible.

Advise on trends

Following on from this, resilient boards also deploy AI and advanced analytics to scan the horizon for Black Swans (unknown unknowns) and Gray Rhinos (known unknowns). Applying quantitative analyses to specific scenarios will also help management understand and report on the organization’s full exposure to these risks.

Boards can then determine if the strategy and business model are viable in each of these emerging scenarios. And whether the organisation needs to adapt its strategy to balance resilience with environmental sustainability – and advise their executive teams accordingly.

Prioritise geopolitical risk

A 75% majority of highly resilient boards acknowledge that emerging risks like geopolitical matters can be addressed insufficiently in risk management frameworks, and detected too late. In contrast just 45% of other board agreed.

Due to this, resilient boards are more likely to bring geopolitical risk into the board’s oversight remit. As EY’s research observes, political volatility will elevate the importance of geopolitics in corporate strategies to its highest level in a generation. The best boards are already preparing to help executives manage geopolitical opportunities and risks, to that end, by staying informed and making sure these are covered in the risk management process.