Today, companies are facing unprecedented challenges: the explosive growth of technology, changing business models, increasing the speed of decision-making, and the introduction of new risk management practices. More than ever, business needs directors who can meet new challenges and help balance sustainability and development. Here is more about it.
Risk management: from chaos to a system
In today’s world changes are happening very quickly, new technologies are emerging, and the level of uncertainty is increasing every day. Planning horizons are shrinking, and strategies written for 20 years ahead are losing relevance. The methods of competition that existed before ceased to work. What made companies successful in the past no longer guarantees them success in the future. Thus, the board of directors must be able to anticipate events: identify trends, recognize potential threats and respond to them on time.
McKinsey Global Institute research confirms that long-term companies consistently outperform their peers in the industry. That is why one of the main tasks of the boards of directors today is to participate in the formation of the company’s long-term business strategy, taking into account existing trends and future market dynamics. At the same time, the strategy should not be rigid since it requires regular updating in a constantly changing world.
The role of the boards in the risk management strategy formulating
The main “drivers” of building risk management systems in companies are two sides. The first is internal auditors, whose task is to start a discussion on risk management issues and give the necessary recommendations to the company’s management. However, the decisive role always remains with top management – the decision of the board of directors is a prerequisite for a holistic approach to risk management.
Thus, in such a turbulent environment, the future of companies will increasingly depend on the decisions made by boards of directors, their ability to catch trends, notice changes in the external environment promptly, assess risks and see opportunities. The tasks of the modern board of directors are formulated much more broadly than in previous years. Shareholders, investors, and stakeholders expect the board of directors to create added value for the company and ensure its long-term sustainable development. Such expectations are, in turn, a big challenge for the boards of directors, forcing them to think about their efficiency and ways to improve it.
How should boards be involved in risk management?
Today, many business models, techniques, tools, and infrastructure solutions exist for implementing risk management processes. As a result, the possibilities for their implementation are very wide, and they may differ from company to company. Moreover, the board management software is a useful tool that can be used for arranging secure board collaboration, data exchange, and better reports and analytics. So, Go Now to choose software for virtual board meeting.
It is useful for boards of directors to focus on the following points:
- General principles of risk management and internal control. Risk management should be included in all business processes. Companies should consider the risks of all structural units in the aggregate and analyze how decisions made to minimize risks in one area will affect other areas.
- Building an effective risk management culture. The company’s system for assessing employees and their motivation should be closely related to the attention of employees to risk.
- Risks of using IT. Modern IT creates unprecedented opportunities for the integration of production and service processes, processes of interaction with consumers, and the creation of innovations.