We see three key levers boards can pull to improve their oversight of risks material to their organizations. First, they must expand their definition of risk and elevate it on the board agenda and throughout the business. Second, they need to modernize the way they — and their CEOs — receive, integrate and act on accurate and timely information. Finally, they need to ensure CEOs are surrounded with the right ecosystem of information, expertise and skills to help them navigate this new world.
Underpinning these levers are organizational decisions about board structure and composition, board and committee oversight responsibilities, C-suite role design and skillsets, and ways of working that enable companies to respond quickly. No CEO can face these ongoing disruptions alone, and boards must act now to support their CEOs.
Expand the board’s definition of risk — and treat it with greater importance
Most boards today define risk through the lens of immediate financial and enterprise risk, and often relegate it to committees which report out to the board. This is no longer sufficient. External risk should be a standing agenda item at every board meeting; what’s happening outside the company matters as much as what is happening within. With the help of management teams, chairs should prioritize the key external risk areas that need full board oversight and devote meeting time to playing out their related black swan events — whether it’s a ransomware attack, cross-border invasion, exposure to bank failures, etc. How are these crises incorporated into risk management practices? This type of new thinking should be implemented throughout organizations, starting with the CEO and how they get information delivered to them daily.
Between board meetings, the board should receive updates, as warranted, from their CEOs about how they and their teams are assessing and planning for geopolitical and geoeconomic risks, to ensure that the board is aware of changes in the intervening months. Also, director education programs should provide more robust education about new and emerging material risk areas, including ESG exposure, quantum cyber, AI and geoeconomics, to name a few.
Elevating risk discussions in the boardroom also extends to board composition and structure. Boards need to think more broadly about the kind of risk expertise needed in the boardroom to better support the CEO in dealing with an uncertain world. For companies with significant operations outside the United States, boards should consider adding directors who understand the geopolitical risks for regions critical to the business. How should board meeting agendas change to adapt to an environment where external risk needs to be more closely monitored? Who owns responsibility for that on the board? Who owns daily responsibility for this on the management team?
Reassess how the board and CEO get (and act on) information
Boards and CEOs have no shortage of access to information on company financials, hiring and even customer sentiment — but often still rely on public sources for information on external risk developments around the world. Today, even domestic companies with little obvious global exposure need to improve their information flows to get on-the-ground business intelligence on issues material to their organization.
It would be impossible for boards to add new directors who can cover all of these issues deeply, but they can and should build a “kitchen cabinet” of external risk advisors who provide real -time insights on specific risk hot spots. While it’s common for boards to call on outside experts for issues like shareholder activism or regulatory compliance, it remains rare to have experts ready to brief them about risks like cyber, geopolitics, or climate impacts. Not only is this crucial during a crisis, but pre-crisis it can shine a light on potential risks and help the organization prepare. This kind of expertise can be beneficial to the CEO as well, potentially via a daily briefing (similar to what the U.S. president receives) from outside experts and top deputies that includes critical information on various domestic and international threats to the business, their potential impact, and any decision points needing the CEO’s input.
Enhance the ecosystem around the CEO
In addition to having the right information, CEOs must be flexible enough to react quickly to changing circumstances, make difficult decisions and be prepared to pivot as needed. This may require boards and CEOs to redefine C-suite roles or even create new ones to adapt to emerging demands — just as the chief sustainability officer role has become a key part of the C-suite to address the impact of environmental issues on the business. For example, investment firm Bridgewater has created a head of geopolitics role, overseeing research on the risks posed by geopolitical conflict to global investors. Or a set of senior leaders, covering a wider range of the organization, could be enlisted to own responsibility for various risks and develop a cross-organizational response.
The way the C-suite works together will also need to evolve. The best c-suites today are agile, horizontal teams that use diverse expertise to collectively solve complex problems — a big shift from the siloed and hierarchical approaches of old. Functions that previously had little exposure to each other may now need to collaborate quickly and often. For example, it may be prudent to include the treasurer in M&A strategy discussions based on that person’s unique understanding of international currency issues.
Navigating the Disruption
This is a crucial moment for boards, a time to ask some hard questions. Do you fully understand the external risks and impacts to your business? What new competencies does your CEO need to deal with them? How can you best support CEOs and their management teams with the resources to address these issues? How is readiness for crises incorporated into risk management practices and even the overall culture of the organization?
Boards that proactively address these issues and help their CEOs and management teams adapt will ensure their organizations can compete sustainably in the future. Now is not the time for complacency.
Michael B. Greenwald, former senior U.S. Treasury official, also contributed to this article.