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Risk Management And Risk Governance In The New Normal: Considerations For Boards

How Boards are run, and need to be run, will need to be rethought in the wake of the Covid-19 pandemic. “The pandemic has shown up the cracks,” said Ramesh Pillai. Sharing insights as an Independent Non-Executive Director who sits on several Boards himself, the IERP Chairman stressed that the pandemic has caused major changes to the business landscape. Boards must step up their game if they are to effectively helm their respective organisations in the “New Normal.” Stressing that Boards cannot work alone, he urged them to give unstinted support to Management teams.

“However, you must not cross the line between oversight and micro management,” he cautioned.

Board members’ seasoned judgement is a crucial factor. It will also be a balancing factor for the changes that are inevitable in the near future. For this, directors will need to be vigilant and keep abreast of the changes in their industry, community and society. Remarking that the 21st century was likely to be divided into “pre- and post-pandemic” periods, he said that the accompanying changes could be all-pervasive. An example is the acceleration of digitisation of business, which has intensified at hitherto unanticipated speeds. Although this pace is unlikely to be sustained, its ripple effect will be felt for some time across many industries.

There is also the unexpected to deal with. For instance, in the midst of intensified online teaching and learning during the pandemic, an unforeseen element has emerged. People have pronounced a preference for face-to-face interaction. “We may believe online activities are better but the feedback from customers, consumers and reality may be different,” Ramesh said. “How effective will a Board meeting or AGM be, if people are uncomfortable with the way it is being held?” A Board that wants to operate effectively needs to think across several different horizons simultaneously, he stressed. Fundamental issues also need to be addressed, particularly those relating to the “New Normal” and the looming “Next Normal”.”

For instance, there are constant exhortations about now having to live in the New Normal. But there has been very little said about what the Next Normal looks like. Nobody really knows; there is no clear picture. The best that can be done is to imagine different scenarios, and develop responses to each of them. “Consider how the different scenarios need to be managed,” Ramesh explained. “Run basic simulations. Management and staff are falling over themselves, trying to manage and simultaneously adapt to the New Normal. Boards need to support them. But anticipating and strategizing for the next normal is a lot more complex” One area they can do this in, is decision-making.

Management is often unable to move forward because only the Board can determine certain matters. In urgent situations which require expediency, Boards can create alternative emergency processes to empower Management to make critical time sensitive decisions. Decision-making can also be strengthened by Board members sharing their experiences of previous crises. This serves to augment leadership capacity of the firm, and enhance sustainability. Another way of adapting to the New Normal may be to implement scalable operations models. These can expand as restrictions lift, conditions improve and people go back to work. Or they can be scaled back in times of viral resurgence when working conditions or hours are curtailed.

“Board members’ advantage is that they would have weathered many other crises (such as the Asian Financial Crisis in 1998 and the Global Economic Crisis of 2008-2009) in the course of their work. Others can benefit from this experience,” Ramesh said.

Measures like this augment leadership capacity and help the organisation strengthen continuity. Continuity is paramount; with Covid-19, no industry has been spared. All have been affected; some to a greater, others to a lesser extent. Companies are having to balance long-term and short-term commitments. But they need to take the time to engage on major decisions in preparation for the reconstruction phase. This will require a review of their strategies and operating models. Here, the Board can provide support by managing the firm’s shareholder and stakeholder commitments. “Board members need to ask the “What If” questions in relation to strategy,” Ramesh said. “Management is just too busy.”

The right questions will go a long way towards ensuring the firm’s processes are agile and flexible. There is a need to stay ahead of the curve – ahead of the “Next Normal.” This means preparing for the next phase: reassessing the organisation’s purposes and goals, and planning for the next crisis. Boards need to be diverse; their members need a wide range of skills to support management. Members should realise that certain things cannot be compromised. One way of managing may be to set up ad hoc committees to deal with crises. Board sub-committees, too, need to be empowered to do more to support management.

The focus should be on strategy, and how the Board should operate, given the extremely fluid environment today.

“The Pandemic is, first and foremost, a humanitarian issue rather than a business one,” Ramesh said. “The biggest risk is that we don’t know what will come next.”

Even so, the Pandemic is an opportunity to transform the way business is done. It has come at almost the tail end of the next level of global industrialisation, Industrial Revolution (IR) 4.0. Because of IR 4.0, there are some platforms which can cope with the challenges thrown up by the Pandemic. One example is the quick changeover to digitisation. Digitisation now is not about technology; it is about a new way of doing business.

Another example can be seen in the race to find a Covid-19 vaccine. Never before have people been able to share information so quickly about anything. But amid all this, risk is increasing. Emerging risks, some without precedent, are contributing to the complexity. Board members may need to change their mindsets, and become attuned to anticipating the future. They will need to be not just leaders, but futurists.

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