On Risk – It’s the Reputation, stupid!

By Frans Cornelis, MBA83J, IDP-C

Risk management is one of the “big three” attention items for non-executive directors, along with strategy and talent. And the current COVID-19 crisis has left many scratching their heads, wondering what lessons one should draw from this highly unpleasant experience.

Previous worldwide crisis situations that virtually no-one had planned for gave rise to concepts like “The Black Swan”. So is COVID-19 a “Black Swan”? Probably not – to quote Michele Wucker, it is more like a “Grey Rhino”: a known risk, rare but by no means fully extinct, and with very destructive properties.

So what is a non-executive director to do? Classic “risk management” often has a financial and statistical focus. One can and should insist that an organization maintains sufficient reserves. Of all types. And it is obvious that the idea that if you have less than your maximum leverage you are inefficient or in some way not maximizing things for your stakeholders is probably overdue for a rethink. One organization I am involved with, and that had to close down completely for almost three months, is now very happy with the fact that they did not go anywhere near the limit, and that they are therefore surviving where others have already gone bankrupt.

Over the decades, “Risk management”  has almost been developing in a specialized science. In many if not most major businesses, there are elaborate schemes to assess risk; usually on the financial side (interest rates, policy changes, but also things like fashion change etc.). Mostly drawn up by accounting people. As a non-executive director, you could be forgiven for thinking that you have done your job well when you have scrutinized, probed and discussed the typical complex and serious report on “Risk Management” that has been produced for inclusion in the annual report.

And yet…… The Covid-19 crisis should also make us think first and foremost about something the Coca Cola leadership used to say: “You can take away everything, but if you leave the brand and some of our key people, we will rebuild the business”.

And, interestingly, science backs this up. The annual AON risk management surveys have a consistent item in the #1 spot for largest risks for decades now: Reputation.  Not industrial policies, fashion, monetary policy, flooding or what have you. They all figure in the lists, but Reputation comes out on top.  Almost every time, usually by some margin.

Also, the Boston based Reputation Institute, in cooperation with the Rotterdam School of Management (RSM), runs serious longitudinal studies of many thousands of organizations worldwide measuring “Reputation”. They also point out that Reputation is closely linked to another concept: Identity.

And there are quite a few cases, with verified examples, where they can prove that a high reputation score allows you to recover quickly from a disaster, whereas a poor reputation score does not.

Studies by prof. Cees van Riel (RSM, now emeritus) also show that the actions in the initial phases by the company executives and spokespeople are critical for benefiting from that “Reputation cushion” or not. The wrong actions quickly destroy that reputation, sometimes forever.

Like in the well-known case of once world leading Perrier water, where a contamination was detected in their flagship product. While a recall was forced on the company in the USA, the management sought to play for time and declared, untruthfully, that this had been a one-off mistake. In reality, it soon became clear that water all over the world had this contamination, and that it would have had this for quite some time. In a post mortem, it turned out it was due to bad quality and process control at the source itself.  Why did management lie, did they know they were lying? Hard to tell, but certainly the attitude was one of denial, at the expense of their customers, and subsequently, the other stakeholders. The company never got anywhere near its previous market share, valuation and standing. It was sold 18 months later – to a direct competitor.

So does this mean that non-executive directors should also insist on better PR people, or that they should have probed the quality systems at the core processes better? That cannot be the right answer, as they would end up firmly on the chairs of the management.

What it does mean is that we should all be aware that while Reputation is the key risk, it is very closely linked to the actual Corporate Identity. That Identity is defined by norms, values, ethical choices, character. Not so much the beautiful words in the corporate statements, but the real actions and the actual paradigms.

What it does mean is that we should all be aware that while Reputation is the key risk, it is very closely linked to the actual Corporate Identity.

What you do in a crisis will be seen by all stakeholders, and they will immediately notice when, faced with a tradeoff between the interests of various groups of stakeholders, the company chooses against its customers.

This “Identity” (the actual one, not just the one on paper or in advertising slogans) is something formed over many years, and ingrained in the character of the employees. It is heavily influenced by the actions and personal examples of the management. The “value statements”, “purpose statements”, “brand” or whatever they are called are certainly important, and one has to start from somewhere, but actual behavior is the deciding factor.

That Identity is, as the Germans like to say, “Chefsache”. So yes, a Risk Analysis does deserve the full attention of good non-executive directors. If the report does take Reputation into account, so much the better. But in my mind, great non-executive directors have also made sure that the core values inside the organization, what people feel they stand for, and the ways the outside world perceives the organization, have been carefully defined and strengthened.

When a highly appreciated Identity as externally perceived is aligned with the “employer brand”, the  “corporate brand promises”, the investor reputation, and the actual internal and external actions, you have a fantastic foundation that will also guide and determine the right actions in a crisis, when there is no time to weigh and ponder each individual statement or action.

In the current COVID-19 crisis, there are many examples of companies that were quick, open and transparent when they could not keep their promises. I know of some organizations where clients literally sent emails saying ”Keep my money, hang in there, and we’ll see what you can do when this is over”. But there are also many companies who leapt from promise to promise, did not follow through on the promises for many months, got into overly legalistic and “small print” conversations and lost a lot of sympathy with their stakeholders.

I have a hunch who, a few years from now, the winners will turn out to be.

So my recommendation for non-executive directors in these times is: do read your Risk paragraphs – but also do check whether the crisis actions harm or bolster the reputation of the organization. And whether there is a clear, admirable and effective “Identity”. Because once survival is more or less assured, that is what will determine how well you can bounce back – or not.

Corporate Governance in Startups

The need for appropriate governance in startups is becoming increasingly acknowledged, however the experience in doing so in the best possible way is however limited.

Luc Sterckx, President and member of the boards of a number of international boards, and an INSEAD alumnus and IDP-C (INSEAD Certified International Director) has recently published his book, “Corporate Governance in Startups” which clarifies the distinctions which need to be made, in particular in the context of the limited means of a startup.

The book combines the structural and legal basis of governance in startups with his extensive experience in the field over several years and shows the way of very practical implementation including setting the right priorities.

We asked Luc his advice on the following important questions:

How do you implement good governance in a start up?  What should be the right priorities?

Given the limited resources (in time, experience, competence) of a startup, implementing of good corporate governance is not an easy task – that does not make it less important however quite the contrary.

When asked what the priorities should be, I think compliance with legal provisions is a first must have, second investing into an appropriate board of directors and thirdly realizing you start on a never ending journey of continuous improvement in this field. It is a team effort much like in bigger companies but in a quite significant environment.

The implementation of good Corporate Governance in a startup is mostly a matter of learning and improving along the way. In the often-hectic environment of getting a company launched, Governance seldomly gets the priority it deserves (although this appears to be changing).

Anyway, at the start the situation will be what it is, which probably is a long distance away from “best” Governance practices. That should not be necessarily too negative, provided there is consensus on continuous improvement of the Governance process.

What are the best practices you recommend in governing startups which allow them to remain workable and efficient compared to bigger companies?

A startup by definition is facing a serious number of challenges and choices – possibly even larger and more complicated than an “established” company. The need for focus has been stressed before but considering the many options and questions, it is clear that not all matters might get focus. It is all a matter of setting priorities and setting such priorities, balance is essential and Governance structures play an important role in this process.

“It is all a matter of setting priorities and setting such priorities, balance is essential and Governance structures play an important role in this process.”

The first balance which needs to be respected is the one between the short and the long term. In a startup fires abound, and it is tempting (and sometimes necessary) to turn the entire team into firefighters.

The second balance is the one between the different stakeholders, where especially the interaction between founders- entrepreneurs-shareholders-managers on one side and the external shareholders on the other is a tricky one.  A particular point of interest is the relationship with the founder(s) – he/she or they did not start the company to become experts or champions in Corporate Governance. Their key values and interests revolve around creativity, freedom, growth … and these should be taken into account and above all respected by the Governance structures.

The third balance in the company relates to the structure of the balance sheet. In particular, the company should be attentive at financing the long-term capital needs by long term liabilities such as equity and long-term loans.

The fourth balance concerns the necessity to maintain a creative, entrepreneurial free spirit and atmosphere in the company while on the other side a similar necessity to manage and control the company through instruments such as budgets, reports, procedures.  Once a company has been set up, the latter principle becomes unavoidable whereas the former necessity can be and often is essential for the growth of the company.

The fact that financial resources are always with a limit makes it however necessary to stay in control of what is happening. That can be done in a remote way, at arm’s length by allowing “creativity with a purpose” to evolve within a given framework. A lot will depend on the personalities of the people involved in this debate, but with some goodwill things can be straightened out.

What would be your key recommendation to directors who are asked to be on the board of a start-up?

I don’t think these are so different from the ones for “ordinary” companies.

Before anything else understand the fundamentals of the business and the strengths / weaknesses of the company are prime objectives. And maybe some particular qualities required: be flexible and above all prepare to ride the storm!

 

The Good Coach Wins The Game – The Chairman And Their Team

By Kolja A. Rafferty, MBA, IDP-C and IDN Switzerland Ambassador

In professional sports, mental readiness is key for champions.  This is highlighting the importance of being mentally balanced also for senior executives. The Non-Executive Board must observe and nurture the mental health of the firm’s top executives in addition to overseeing the firm and acting as the interface between shareholders and executive management, to create resilient and sustainable organizations.

Executives are skilled, able, and well-meaning! Yet, in situations of rapid change, they are observed to act dysfunctional.

Research has shown, executives are skilled, able, well-meaning, and well informed about the firm and its surroundings. In general, they are motivated to pursue the best interest of the shareholders. However, in economic turmoil, executive teams have been observed, to fall into a cycle of dysfunctional communication. This is starting with a state of secrecy and denial, further escalating to blame and scornavoidance and turf protection and finally passivity and helplessness.

“Some pressure is good. It makes them run faster!”

A myth in management claims: A level of stress enhances the task performance of the employees. This belief is based on research results conducted in 1908 by the two animal behaviorists Yerkes and Dodson at the animal behavior faculty of Harvard on Japanese dancing mice and has been challenged by various scholars in the past years. Unless the executive team has been recruited from Japanese dancing mice, an increased stress level is diminishing executive performance.

Global sports management is ahead of bespoke management practice

Across different disciplines the global market for professional sports achieved 2019 a total revenue of $ 1.8 billion, leaving an average sports team with a revenue of $ 39.5 mil., in the same spot, as many SMEs. The sports industry is in reality a subbranch of the media and entertainment sector, where task-performance objectives are only on semblance reduced to scoring goals, similarities to business are stronger than one may think.

Muscles and brains cannot be separated from each other. For professional athletes, peak performance is the result of rigorous training regimes and a state of mental readiness. Yet, other than in economics, mental preparation is not left at private discretion but is nurtured by mental coached, preparing athletes for the match. Mental readiness is understood as a critical factor, which is attended with thorough attention.

When it really matters, the framework for top executive performance is at its worst 

Stress factors, related to situations of rapid change, where the dynamics of the transformation keep accelerating and exceed the level of control of the management, are identified and can be categorized. Excess executive stress under distress and turmoil conditions is driven by four aspects.

  • Rapid and drastic changes in the work environment, including increased workload, changes in processes, style, and communication
  • Financial and legal concerns, caused by reduced payouts, fear of job loss, potential personal liabilities (et al.).
  • Emotional disruption, through continuous and repeatedly non-appreciating communication with various stakeholders, but also including disharmony in the intimate relationship.
  • Future worries, for reputational consequences, the continuation of the own career path etc…

Clustering the drivers for executive stress, most stress drivers are triggered by immediate and internal processes. The Board-of-Directors holds the authority, to establish a culture, voiding the most notorious stress drivers, to protect and retain executive performance in situations of rapid change. This can be a foundation for growth and sustainability.

A coach, allowing his team to be mentally distracted before the championship, will be fired on the spot! For a reason!

In situations of rapid change, higher levels of emotional stress and turmoil are suspected to be the differentiating element between the executive teams of firms in distress that must be liquidated and those, that manage to recover.

Capital markets are sensitive to the emotional well-being of the CEO already on a much lower level. Research has proven correlations between the emotional distraction of the experience of a recent divorce and the reactions of the capital markets.

In the 21st century, we are applying executive (self-)leadership of the 1800s

For once, let’s be honest: We all «kind of» know about the risks of Burn-out and the importance of mental health in the Executive world, yet, a stressful workday, permanent connectivity and late hours in the office are treated by many executives as “scares of honor“. Regrettable yet excusable liabilities to the family, the intimate relationship or the own, personal balance and well-being. For career frontlines, this is accepted as the price for success.

In parallel, Executive incentive systems are set up to foster the short term profitability of a firm, yet often fail to include mental balance of the executives in the considerations. It is fair to argue, high paid executives must observe their capabilities to perform themselves, yet, ignoring the relevance of mental balance for executive performance and focus on short term outcomes exclusively, can diminish the resilience of the organization.

In sports this would be equal to send the best player of the team to the match, whilst ignoring recent, previous injuries. Chances are: Small problems will cause bigger problems and end in negative outcomes when it really matters.

A small injury, left unattended, can prove being fatal in the final match.

The Good Coach

For the coach it is key to understand, performance levels vary even for top players. This can be due to daily performance variance, subject to dealing with legacy issues, or emotional burdens. In either case, the result of today’s match may be depending on high performance to be delivered to the point. To win the match the coach must exercise the right assessment of the status of the team and its key players.

For the Chairman, the ongoing monitoring of the capabilities of the executive team is at the core of her responsibilities in order to facilitate long term and sustainable growth and success and foster the resilience of the firm.

Executives are on top of the daily challenges and routines. Even on a “bad day“ they will perform on a sufficient level. Things can turn critical, if the tides are rising. It has been observed, companies, heading for growth and, firms exposed to disruption in the external environment, carry high risk of failure. Resilience is key for the executive team, to deal with situations of rapid change, where the dynamics of transformation keep accelerating and the level of control is diminishing. Here, executives need excess capabilities to control the situation and quickly adapt to a new reality.

For the chairman it is key to understand, if she has the right team in the game. Cheering and motivating, directing from the sideline, bringing in expert players for special situations but also making sure exhausted players rest, and bringing in fresh blood to the match are part of orchestrating a match.

Rigorous training leads to the championship

Success is not born on match day, but build up over the season.  Resilience and engagement on the executive level is the result of a process.

To the good, a healthy and well facilitated culture, regular executive education can build up a strong and capable team, able to take on turmoil and situations of rapid change; yet, to the bad, toxic work environments, unhealthy relationships, exhausting periods at work without rest etc. can deplete the resources of the executives and bring individuals close to a point, where breaking sooner or later is inevitable. A little increase in pressure, and the capabilities of the team can be exceeded.

Take away – game changer or playmaker?!

Understanding skills and current capabilities of the executive is at the heart of the chairman’s responsibilities.

Selection, succession planning, challenging, re-training, of the executive team – these are disciplines, easily agreeable to be mastered by the Non-Executive Board. Yet, there is more to it. Identifying and mentoring key players on different levels of the organization, assessing temporary downturns of individual performance and understanding trends vs. events is key to be able to facilitate sustainable success and build resilience throughout the organization. Also, creating a culture, which is aware and hedging for systematic stress drivers, the executive team is facing, specifically in situations of rapid change and moments of turmoil, is key to create value from the board and prepare an organization for rough times ahead.

Kolja A. Rafferty, MBA, IDP-C is an author, consultant and executive.  Kolja focuses on situations of rapid change, turmoil and economic distress. He is operating for Private Equity investors and Banks in Europe and the Middle East, helping to resolve distress situations in companies of different sizes and sectors.

First published here.

 

Women COVID leadership – The Head, the Heart and the Egos

By Helen Pitcher OBE, IDP-C, President of INSEAD Director Network, Experienced Chairman, NED and Board Committee Chair

When we look back at the ‘good the bad and the ugly’ of the Covid Crisis, there will be many lessons to be learnt and best practices reviewed to prepare for any future global pandemic.

Some will be very practical lessons such as the need for quick reactions on key activities like trace and isolation, social distancing and using protective masks.

Some will be structural, such as responding to early warning systems as in New Zealand, or quickly deployable and scalable testing and tracing as in Germany, or rapidly deployable ‘critical care’ hospital capacity as in the UK.

It is largely clear that the countries impacted severely by the earlier SARs local epidemic (it was not officially a pandemic) have sensitised their health systems and citizens to respond effectively to a global pandemic threat and learnt some of the hard lessons the ‘West’ is now encountering, but was initially more sceptical about.

The last globally declared pandemic was in 2009 and the World Health Organisation (WHO) was harshly criticized when this global flu pandemic turned out to be much less severe than people had feared. “Rather than feeling relieved the pandemic wasn’t causing large numbers of deaths, people felt aggrieved they’d been scared over something they later concluded was far less scary than expected” and “governments that had contracts to buy pandemic vaccine — contracts that were triggered by the WHO’s declaration — were left on the hook for a vaccine many people didn’t want.”

There will undoubtably be a whole raft of epidemiology insights and new models preparing for future pandemics, together with a large smattering of hindsight and blame to be apportioned, with Enquiries and Commissions galore.

An increasingly talked about issue, which will undoubtably be part of the post-Covid debate, is the role of female political leader during the crisis.  There will be debates over the consensual approach, holding sway in many female leaders’ domains, versus the ‘obey and just do it’ approach in some more authoritarian regimes, which have also proved successful in managing the disease growth.

It has been widely reported in the media that we have seen a cadre of female political leadership who have managed a more successful response to the crisis, keeping the spread and contagion low in their countries.  This often quoted ‘super seven’ of the ‘Nordic quartet’ of Erna Solberg of Norway, Sanna Marin of Finland, Mette Frederiksen of Denmark and Katrin Jakobsdottir of Iceland, together with New Zealand’s Jacinda Ardern and Taiwan’s Tsai Ing-wen is rounded off with the G20 member Angela Merkel of Germany. They are praised for their approaches which have encompassed a range of stereotypical ‘female traits’ of caring, empathy and collaboration, listening to a broad range of diverse views and communicating effectively with the public. These traits have been seen to build trust, transparency and accountability at a time of significant global confusion and panic.

Trust: the long serving Angela Merkel, the Chancellor of Germany, stood up early and calmly told her countrymen that this was a serious bug that would infect up to 70% of the population. “It’s serious,” she said, “take it seriously.” She did, so they did too.

Quick action: by Tsai Ing-wen in Taiwan. Back in January, at the first sign of a new illness, she introduced 124 measures to block the spread without having to resort to the lockdowns that have become common elsewhere.

Clarity and decisiveness: Jacinda Ardern in New Zealand was early to lockdown and crystal clear on the maximum level of alert she was putting the country under—and why. She imposed self-isolation on people entering New Zealand astonishingly early.

Using technology and social media: under the leadership of Prime Minister Katrín Jakobsdóttir Iceland offers free coronavirus testing to all its citizens, and instituted a thorough tracking system that meant they did not have to lock down or shut schools.  While Sanna Marin the world’s youngest head of state when elected in Finland, demonstrated the skills of a millennial leader in action, spearheading the use of social media influencers as key agents in battling the coronavirus crisis.

Compassion and innovation: Norway’s Prime Minister, Erna Solberg, used television to talk directly to her country’s children. She was building on the short, three-minute press conference that Danish Prime Minister Mette Frederiksen had held a couple of days earlier.

Their rarity as female political leaders with a social caring leadership style, has put these women in the spotlight in a sea of mediocrity and aggressive denial in facing the realities of the Covid crisis.

The analysis of their success is by no means complete and relies, by dint of their rarity, on a small sample of female leaders.  It is also, to use that beloved male sporting analogy ‘a game of two half’s’ with the economic impact as likely to cause significant hardship and distress as the contagion phase.  We can only hope that the characteristics shown by these women can carry through into the global economic stage, as the world seeks to work together to get the world economy and business working again.  The signs, however, are not great, with many of the male dominant G20 leaders seeming to be acting out that other standard from the male playbook of ‘last man standing’, with very self-interested and self-absorbed approaches.

It ironic that following the ‘Financial Crisis’ of 2008, the world was saved from another ‘Great Depression’, by the largely male dominated G7 Finance Ministers and Central Bank Governors ‘call to arms’, where they worked as one in concert and collaboration to inspire the G20 leaders to co-ordinate and stimulate the world economy to grow again.  Notwithstanding that they have much less room to manoeuvre this time, it is difficult at this point, to envisage a similar response from the current global leaders to this crisis, characterised as they are by blame and isolationist approaches, they look more like more subversives than saviours.

It is putting a significant burden on the German Chancellor Angela Merkel, as a key G7 leader, to spearhead this charge alone.  Perhaps the newly installed EU female leadership of Ursula von der Leyen as Head of the European Commission and Christine Lagarde as leader of the European Central Bank will add to the proceedings, especially as recent remarks by Christine Lagarde suggest she ‘buys in’ to the concept of caring collaborative female leaders making a difference.

What is clear is that one country alone is unlikely to re-ignite the global economy and it will take those characteristics of collaboration and communication demonstrated by the ‘super seven’ to see us safely through the ‘second half’ of the epidemic.

It is also clear that the adversarial political environments characterised by many of our major economies is less conducive to a collaborative consensus approach, whoever is in charge.  It is noteworthy that the majority of the ‘super seven’ have developed and grown in cultures which are more socially orientated with consensus-based politics of coalitions, where compromise and diversity of thinking and inclusion are to the fore.

While the case for women leaders is at this stage more anecdotal than data driven, we can only hope that more women are energised and inspired by the ‘super seven’ to step forward to make a difference and join into the political leadership process.

However, the shift to a less adversarial political process from the “winner takes all approach,” is challenging and problematic, with too many political parties, and backers still focused on getting women to behave more like men if they want to lead or succeed.  As articulated by Alice Evans a sociologist at King’s College London who studies how women gain power in public life, this can be difficult for women to meet as “There is an expectation that leaders should be aggressive and forward and domineering. But if women demonstrate those traits, then they’re seen as unfeminine” “That makes it very difficult for women to thrive as leaders.”

As we address more global issues, a consensus style of leadership will become increasingly valuable, with global threats from climate change escalating, creating more ‘natural crisis,’ together with an almost certain greater sensitivity to pandemics.  These types of issues cannot be dominated and cowered into submission, they do not respond to the “classic self-obsessed leadership projection of power, acting aggressively and showing no fear.”

These role models of strong female leaders succeeding in a global crisis, send out a strong message to all political leaders.  With their success their political status has, grown with their characteristics of curiosity, humility, empathy, and integrity, becoming a benchmark of effective political leadership.

Article first shared here.

Putting a people lens on risk management and controls

COVID-19 has been a catalyst for many boards and management to focus more on the well-being of their people and their corporate cultures.  What could this mean for risk management and controls?

By Karen Loon IDP-C, IDN Board Member and Non-Executive Director

As directors in times of crisis, many of us have become more anxious as a result of the multiplicity of uncertainties we have experienced, both at work and in our personal lives.  As a result, in our director roles, we may inadvertently bring these anxieties into the boardroom.

Whilst our role includes asking questions about what we can do to minimise the risk of similar circumstances in the future, and the new environment has definitely led to new risks which need to be managed, particularly cyber risk as digitisation has accelerated, there is also a risk that we ask our organisations to put in place additional measures, policies, procedures and controls without fully understanding the root causes of these complex new issues, which could inadvertently lead to further organisational and employee anxieties and issues in the future.

At this time, is it worth us taking a step back and reflecting on whether we fully understand our organisational cultures and future challenges with a people lens on before taking action?

The impact of Work from Home

COVID-19 has had a major effect on our lives as it has impacted our work-life balance.  Confined to home, many of us have seen the boundaries between our private and professional lives disappear.  Whilst some may view this liberating, others may not view this as positively.  Added to this has been the long emotional roller coaster we have been on – the longer that social distancing lasts, the less energetic and motivated people may be.  I know of many people in senior roles who are exhausted as a result of working from home for months.

Maintaining a healthy corporate culture

COVID-19 has not only impacted the business models of organisations but had a significant impact on how people work together.  For some employees, they may feel excessive pressure to achieve results due to the fear of losing their jobs.  For others, interpersonal relations may be inadvertently strained due to the physical separation of teams.  This loss of energy and motivation is challenging the old ways of working together, and could lead to tensions in organisations.

Given the way we work may not return to the way things were for some time (or even at all), reflecting on whether our corporate cultures are healthy and whether their systems, norms and values are fully aligned to the purpose of our organisations is something which boards should reflect on given this will influence how people feel and behave.

How could risk management and controls be impacted?

Many risk management and control frameworks were put in place in organisations to focus people on how to manage their businesses assuming they will operate as usual, that they can identify and manage most risks, and that people will behave as expected.  However, not all risks and behaviours are as expected, for example, internal frauds continue to take place.  Further, who would have expected COVID-19 would have taken place, and the impact it has had on organisations and people!

In a crisis like COVID-19, sudden triggers may lead to individual anxieties and unexpected behaviours by individuals, some of which may have been triggered unconsciously.  Before putting in place additional measures, policies and procedures, it is worth considering how people may feel and may behave as a result of them before putting them in place, as the measures could inadvertently increase organisational and individual anxieties and impact behaviours, which could lead to other risks.  It is worth noting that many IT/cyber issues can be traced back to human errors or oversight.

As directors, we have a role to ensure that there is an appropriate balance between resilience and agility in our organisations.  To evaluate the effectiveness of the risk management and controls in our organisations requires us to consider our overall organisational cultural context and norms.  For our companies to perform, we also have a responsibility to ensure our people’s well-being is looked after.  Questions we should ask ourselves are:

  • Does the culture of our organisation and the way that we work in the new norm lead to collaboration, respect, trust and accountability? Is there an environment of continuous learning environment where we learn from our mistakes across all levels of the organisation (being individual, interpersonal, group, intergroup and interorganisational) which will allow the organisation to pivot and be agile in the future?  Or is it overly competitive and overly focused on growth, more individualistic, have silos and is less open, and is technocratic and rigid?
  • How has increased digitisation and working from home changed the way work is done? How have our risks changed, and how should our controls best manage these risks?
  • And given the need to manage both performance and people, should we revisit at how we manage our risks and our control environment differently? For example, do our remuneration policies appropriately balance resilience and agility considerations?

Time to reflect

Many of us look at how organisations identify risks and the controls put in place from a rational and logical perspective.  However, at times of stress and anxiety, not all of us may behave as we would do in a pre-COVID-19 environment.

In undertaking our roles, we should strive to be empathetic, build trust, and take a step back and consider the people aspects of our organisations and how they impact risk management and the control environment.  Assessing corporate culture and putting a people lens on how risks are managed will be an important role of boards when guiding their organisations forward in a more uncertain world.

Karen Loon is a Non-Executive Director based in Singapore.