In an era of unparalleled challenges, the board’s role in preparing for extraordinary risk has never been more vital. Nora Aufreiter, Celia Huber, Ophelia Usher, and Sean Brown share eye-opening insights that will transform your perspective on risk management. Discover the game-changing strategies that can safeguard your organization’s future.
Dive into this must-read summary and review to unlock the secrets of effective risk preparedness and elevate your board’s performance.
Table of Contents
Genres
Business, Management, Leadership, Strategy, Risk Management, Corporate Governance, Decision Making, Crisis Management, Resilience, Adaptability
In the podcast “The role of the board in preparing for extraordinary risk,” Nora Aufreiter, Celia Huber, Ophelia Usher, and Sean Brown delve into the critical responsibilities of the board in navigating unprecedented challenges.
They emphasize the importance of proactive risk identification, scenario planning, and fostering a culture of adaptability. The speakers highlight the need for boards to adopt a forward-thinking approach, regularly assess and update risk management strategies, and ensure effective communication and collaboration with management teams.
They stress the significance of building resilience and maintaining trust with stakeholders during times of crisis. The podcast provides valuable insights and practical recommendations for boards to enhance their risk preparedness and effectively steer their organizations through uncertain times.
Review
“The role of the board in preparing for extraordinary risk” is a thought-provoking and timely podcast that sheds light on the crucial role of the board in navigating unprecedented challenges. The expert panel, consisting of Nora Aufreiter, Celia Huber, Ophelia Usher, and Sean Brown, offers profound insights and actionable strategies for effective risk management.
The speakers’ wealth of experience and diverse perspectives contribute to a comprehensive and well-rounded discussion. The podcast excels in highlighting the importance of proactive risk identification, scenario planning, and fostering a culture of adaptability within organizations.
The practical recommendations provided are invaluable for boards seeking to enhance their risk preparedness and effectively guide their organizations through uncertain times. While the podcast covers a wide range of topics, it maintains a clear focus on the board’s role, ensuring relevance and applicability for the target audience. Overall, “The role of the board in preparing for extraordinary risk” is a must-listen for board members, executives, and anyone interested in strengthening their organization’s resilience in the face of unprecedented challenges.
Recommendation
Risk management isn’t what it used to be. Today, boards must consider risks of remote probability that might have potentially deadly consequences for their organizations. Managing such existential risks is the board’s responsibility, but how should boards proceed? No company can insure against everything, and even where insurance is available, it may prove too costly. In this McKinsey podcast, host Sean Brown talks to the consultancy’s experts, Nora Aufreiter, Celia Huber, and Ophelia Usher, about steps that boards can take to face these challenges. Board members and senior managers in every industry should be aware of their advice.
Take-Aways
- The COVID-19 pandemic showed that many organizations cannot handle major risk.
- Sometimes an issue may begin as one kind of risk but grow to encompass other risks.
- Organizations’ boards of directors need to cultivate a risk culture.
Summary
The COVID-19 pandemic showed that many organizations cannot handle major risk.
A survey discovered that fewer than half of board members think their organizations are sufficiently prepared for the next critical risk. Risks such as the COVID pandemic may have a low probability, but they can be devastating when they materialize. The textbook approach to dealing with various risks used to be calculating the value at stake and multiplying it by the likelihood of a particular risk occurring. The lower the probability, the less concerned a board had to be. Today, however, boards must treat all such risks as possible.
“Boards that do [scenario planning]…purposely pick one of the outlier scenarios to go deep on so that they can push their thinking.” (Celia Huber)
Boards and executives often receive advance indicators of a trend or a risk developing. For example, board members understand that nurses will one day retire, but the increase in early RN retirements attributable to COVID-19 poses a much higher level of risk to those healthcare companies that can’t function without nurses. An inability to hire indispensable personnel is an “existential risk” to the operation of any business.
In the past, boards generally considered risks one by one, but the pandemic manifested three major types of crises simultaneously: Health, financial, and social. Highly-leveraged retailers may have been pushed close to bankruptcy due to that combination of risks, rather than due to any single type of risk.
Sometimes an issue may begin as one kind of risk but grow to encompass other risks.
Companies can anticipate risks, even improbable ones. Boards should assess these low-probability risks and consider their potential impact on their organization. One organization, for example, identified almost two dozen trends that could eventually pose a risk. It focused on a few that could imperil its business and conducted “pre-mortems” accordingly.
“We often assume that the status quo will remain the status quo, but if you identify external trends and reflect on the core assumptions about your business, all of a sudden a number of implications arise.” (Nora Aufreiter)
In most organizations, managers offer presentations about a potential risk, and board members ask a few questions. Yet in-depth, informed discussion between the board and upper-level executives can bring more significant, hidden risks to light. Newer board members may prove particularly valuable in this exercise because they can ask about things that other, longer-seated members may take for granted. Board members must come to understand that their companies should “invest in resilience.”
Organizations’ boards of directors need to cultivate a risk culture.
When an organization’s culture is alert to possible risk, the indications of a developing risk receive more focused and prompt attention from directors and managers.
If investment in risk management appears too costly, the board should consider whether it’s following the correct business model. Insurance may be expensive, but what if the alternative is facing a crisis without insurance and having to shut down? For example, companies can buy insurance to cover chemical spills, but they can also undertake operational changes to mitigate the risk of a spill. If a company faces a ransomware risk, directors should consider, for instance, the cost of suspending business or having business disrupted while deciding whether to pay a ransom. How directors consider such issues may vary due to regional differences or specific concerns in particular industries.
“When a trend is not favorable to your operating model or strategic plan, how can you track leading indicators so you can act when the trend reaches a certain point?” (Ophelia Usher)
The best practice is to pick a scenario, even an unlikely one, and do a deep dive into its likely processes and consequences. Have outside experts discuss trends and risks. Also, ask them to argue for a strategy opposing the company’s business decisions to provide an alternative point of view. Institutions must determine what changes they want to make in their strategies or on their boards to inculcate a preparedness-focused “risk culture.”
About the Podcast
Nora Aufreiter, who serves as a director on the boards of Scotiabank, Kroger, and Cadillac Fairview, is a senior partner emeritus in McKinsey’s Toronto office and a senior advisor to the firm. Celia Huber is a senior partner in McKinsey’s Silicon Valley office. Ophelia Usher is an associate partner in Stamford, CT. Sean Brown is director of global communications and external relations for the firm’s Boston-based Strategy & Corporate Finance practice.