Why does resilience matter for businesses today, and how should boards be approaching it?

In today’s dynamic economic and social landscape, the vigilant monitoring of risks is a prime concern for boards across the world given the increase in the number of risks they are facing. Risk management has become a central topic in conversations on business resilience.

EY organization define resilience as the ability to anticipate, prepare for, respond and adapt to a changing environment. Our Global Board Risk Survey 2023 explores why boards must improve their resilience to mitigate risk and improve competitive advantage.

The survey reflects the views of 500 board members from organisations across the world and different sectors with revenues of over US$1b.? It contains some interesting insight about how boards approach risk management today, and how they are grappling with new priorities and risks that have been outside their traditional remit.

As EY Center for Board Matters Leader for Europe, Middle East, India and Africa (EMEIA), I’m interested in the impact of resilience on competitive advantage, and how boards can build trust and create value by prioritising resilience.

So why does resilience matter more today, and how do the most resilient companies behave differently?

1. The risk environment has become more expansive and complex, and the speed at which risks crystallise has also increased.
2. Companies increasingly need to be ready to adapt.
3. Our survey found that boards at highly resilient companies (23% of those surveyed) behave differently in 5 key areas:

• Identifying emerging risk
• Talent and culture
• Socio-political issues
• Sustainability
• Technology

?Highly resilient boards recognise it’s about modifying their approach in timely and appropriate ways.? They are more confident they can respond to unexpected high-impact incidents (56% vs. 34% of less resilient boards). They are also more likely to be highly effective in aligning risk and business strategy (64% vs. 29%).?

There are some interesting insights across different regions.?

I was interested to see how the results vary depending on the location of the survey participant and was curious to understand why.

For instance, the report highlights a difference in overall risk management readiness, with boards in EMEIA, scoring themselves slightly behind peers in the Americas and Asia-Pacific on talent and overall risk management.

Some of the difference can be attributed to disruption from the global Covid-19 pandemic, which presented a range of scenarios perhaps more difficult to navigate in Europe. This provides a different lens through which to view the survey findings.

There is also additional context from the war in Ukraine, which has disrupted supply chains, and caused boards to consider the effectiveness of their existing risk management strategies in responding to the exits of some businesses and investments in Russia.

What can boards do better?

To answer this question, the research draws out areas where resilient boards outperform their peers. Here’s the top 5 areas where boards should focus to keep pace.

1. Develop a better understanding of interconnected risks linked to business strategy.

Boards should look further at initiatives aimed at enhancing their overall risk management capabilities. These could include strengthening their horizon scanning processes and fostering a deeper understanding of interconnected risks, where there was a marked difference against peers in the Americas and Asia-Pacific.

Additionally, focusing effort on scenario planning for multiple risks presenting at the same time will help refine risk appetite, and better align the approach to risk with strategy and opportunity.

2. Strengthen the board’s role in overseeing talent and culture across the business.

Talent shortages, ongoing transformation and the competing needs of a multi-generation workforce are driving talent risks up the board agenda.

Monitoring a broader range of measurable talent KPIs is therefore a consideration, across areas such as employee experience, DE&I, and technology transformation to meet the evolving needs and expectations of today’s workforce.

3. Build trust by approaching socio-political issues systematically.

A growing number of stakeholders expect businesses to take a stand on issues which are part of the public discourse and often played out on social media, in areas such as LGBTQ+ issues, racial inequality, and women’s reproductive rights.

Having formal processes and frameworks in place to oversee and assess socio-political topics is critical for boards to build trust.

4. Prioritisation of sustainability in decision making.

Environmental sustainability is becoming critical in building resilience and enabling future business success. ?Boards can access knowledge and expertise on ESG related topics in several different ways: changing the board composition, bringing advisers, SMEs and others into the board room or committee meetings more often and/or upskilling the current board.

Configuring their governance over the integration of ESG into strategy and risk may include setting up a sustainability committee or, more consistent with the goal of integration into strategy, incorporating the topics across the board and existing committee business.

5. ?Better understanding of the risks of digital and emerging technologies.

The ever-accelerating evolution of technology means the goalposts are constantly shifting in digital regulation, cyber risks, and the impact of Gen AI.

Regular technology training and insight for boards is therefore important for those whose expertise may lie elsewhere.? Close alignment with the Chief Technology Officer and technology leadership team to understand the risks and return on investment is crucial to increase resilience and governance. Cyber risks need to be a company-wide issue, with a relevant cyber risk management programme reaching all levels of employee.

All of this raises some key challenges for boards – here’s my top five questions for boards to ask themselves:

• How is the board ensuring that the company’s risk strategy aligns with its business strategy? How can the board better support and challenge management in the identification of risk, their interdependencies, and how to drive competitive advantage in how the company approaches those risks?
• How satisfied are we with the effectiveness of the board’s oversight of talent and culture and which KPIs are central to that oversight?
• What are the mechanisms and processes in place for deciding when and how to address critical socio-political issues that could arise? How are we challenging management to identify what’s important for the company’s key stakeholder groups?
• How is the board promoting the integration of sustainability objectives into the company’s strategy with a particular emphasis on the opportunities presented by sustainability issues such as climate change?
• How does the board know that the company is investing in the right technologies, at the right time? How are we keeping up to date on technology and digital topics to make sure you’re asking management the right questions? How can we be confident that the employment of technology has strong governance around it so that it delivers the outcomes we are expecting and in accordance with our values?

Conclusion

The risk landscape for all businesses is ever changing, but our series of benchmark reports has shown that a resilient board - one that can anticipate, prepare for, respond and adapt to a changing environment by asking better questions - is a crucial marker of success.

Please click here for more information on the EY Global Board Risk Survey 2023 and the executive summary.

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.