Honing resilience: Here’s how Indian corporate boards are navigating through the present uncertain world

Boards are the ultimate custodians of an organisation’s well-being, and resilience is the shield that protects against unforeseen threats. Honing resilience is not a choice. In an environment where risks are manifold and constantly evolving, the ability to adapt, anticipate, and respond effectively can be the difference between survival and obsolescence. The ability to not only navigate known risks but also anticipate the unknown challenges that lurk in the shadows has become the hallmark of forward-thinking and robust organisations. As Boards grapple with this profound responsibility, what is it that they can pay heed to?

Indian corporate boards must sharpen their ability to identify - Known Unknowns - risks that are known to exist but have not been fully understood or quantified. An example of a Known Unknown could be regulatory changes in the pharmaceutical industry. The regulations are known to change, but the specifics are unclear until they materialise.

One cannot manage what cannot be measured. Corporate Boards should develop measurable indices to gauge and monitor these known unknowns, allowing for early detection and action.  Creating a measurable index for risks is essential. Such an index could help boards evaluate the potential impact and likelihood of identified risks. A crucial aspect of resilience is having contingency plans in place for various identified risks. Operational resilience is about creating a framework that ensures the organisation can continue functioning even in adverse conditions. Building reserves for unforeseen circumstances is a prudent approach. Local-level action is crucial to prevent distress from escalating. The OODA loop—Observe, Orient, Decide, Act—must be ingrained in the corporate culture.

Transparency is equally crucial, with boards fostering a culture of openness about the kinds and levels of risk associated with business activities. An example here is the need for transparency in the disclosure of environmental risks, which is becoming increasingly important for investors and stakeholders.

The boards must encourage symmetric risk management across all business units, moving away from siloed approaches. Risks in one unit can have repercussions throughout the organisation. Recognising interconnected risks is challenging but essential. Risks are often like dominoes; one can trigger a cascade of others. For instance, a disruption in the supply chain can affect production, leading to financial and reputational risks. Novel risks, those that emerge suddenly and are hard to quantify, are gaining prominence. 

Boards have a duty not only to recognise and react to risks but to anticipate them. The ability to recognise and respond to novel risks, those that emerge from unexpected combinations of events or massive scale incidents, is a distinguishing factor. It's about developing a mindset of preparedness and adaptability. The first line of defence being the  business heads, Boards should encourage open communication channels with them where they can express concerns without fear of retribution. 

Risk and Assurance managers play a pivotal role in this journey. They should be asking how they can help organisations build natural resilience, so they don't have to predict crises; they have the right systems in place to deal with any event as it arises. Digitising the system of events-reporting facilitates quicker response to anomalies. They should be encouraged to always ask, "What If?" and deploy critical-incident-management teams for real-time crisis management.

Novel risks can emerge unexpectedly and on a massive scale. These risks are challenging to quantify but demand rapid, improvisational, and iterative responses. Anomalies should serve as the first sign, and the response must be both humble and swift. 

Corporate Boards should stay vigilant about newer risks, including climate risk, vendor risk, digital platform/business model risk, conduct risk, concentration risk, moral hazard risk, and reputation risk. Preparation for unforeseen risks requires an "operational resilience" plan and building reserves for the rainy days. Resilience goes beyond predicting crises; it's about having the right systems in place to adapt to unforeseen circumstances. Transparent communication is vital. Corporate Boards should be honest about the situation, acknowledge what is not yet known, and provide a rational basis for hope.

A proactive approach to resilience ensures that an organisation remains agile, adaptable, and ready to seize opportunities while effectively mitigating risks. It's a strategic imperative, safeguarding the organisation’s long-term sustainability and success in an unpredictable world. As the old adage goes, it's not the strongest that survive but the most adaptable to change. Boards hold the key to that adaptability.

Authors are Senior BFSI Sector Governance & Surveillance Specialist and ‘Policy Researcher & Corporate Advisor, respectively. Their views are personal.