For the first time in history, during the multiple waves of COVID, boards engaged with a Black Swan event at scale, globally. Amazingly, sharing of experiences also happened without reservation.
The focus was on cash flow, cost reduction, deleveraging, safety of human resources in the entire ecosystem, resilience capital garnering, innovation-driven by digitalisation, supply chain disruption and business model evolution. What might have taken a decade to accomplish was accomplished in two years.
All macros also changed dramatically. Liquidity was pumped into the global economy at a pace unknown to the human race. Inflation has been the inevitable fallout.
The elasticity of travel, hotel, personal and all high contact intensive services has been visible at a rate that has just begun to make the world sit up.
The attention focus on environmental stewardship, social responsibility and purposeful governance has been unprecedented. A virtual war of ideas is on. Conspiracy theories abound.
Management teams and their boards are juggling a wide array of concerns in the face of the coronavirus crisis - from the health of their workforces to volatile equity markets and shuttered debt markets.
Many issues like increasing income and wealth inequality of employees, environmental degradation, climate change, racial and ethnic discrimination, inadequate public health and education have become legitimate areas of concern for business. Clearly, societal forces can profoundly affect business and the competitive environment.
Coming out of the crisis, boards will want to work with their company's leaders to ensure that the company's risk management and oversight systems encompass the risks arising from these large-scale societal problems and take a more active role in helping address them.
Instead of being the exception, robust oversight over sustainability, corporate responsibility, societal engagement, corporate citizenship, ESG -will become the rule.
Mandates are being issued at scale to revamp Risk Management Systems. The COSO framework in its latest version takes cognisance of the need to be agile, resilient and on a fast-paced improvement path.
Some of the key recommendations being implemented by company boards and executives working in tandem are:
Scenario planning for future pandemics and other Black Swan events. At the Mahindra group and at Blue Star Ltd, to name just two, a well-crafted war room has been set up to track geopolitical events and backtrack them into strategic plans.
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Very rapidly, business continuity plans are being evolved to deal with the possible third wave. Focus is on resilience capital being set aside, cash being conserved, severe reduction of inventory, a tightening of credit norms regardless of who the counter-party may be, frugality and the acquisition of an entirely new cost curve.
These are all being considered at LTFH. The entire push for digitalisation is targeted to make every interaction with the ecosystem digital.
Through a process of deep and focused deliberation, these factors and perspectives are being considered at specially convened board meetings sometimes with experts in the room. The tendency is to have the risk management process owned by the CEO.
Resilience is being defined as keeping alternative courses of action ready with trigger events being defined to deploy prioritised actions.
Digitising the health and safety initiatives like time tracking, form filing, safety training, performance measurement, incentives for ESG actions, RPA to reduce human error are all being deployed to cut costs and to increase productivity and profitability.
As future technologies converge, the Vikram and Varun Thapar group is investing in 3-D printing, AI-ML-data Analytics and IoT. These are being deployed in almost every medium and large business and the MSMEs in the ecosystem are being drafted into the process too.
Incentives for high-risk employees: Many businesses cannot rely on a digital operating set-up- including lending and collections, manufacturing and packaging.
In such cases, special incentives that show inclusiveness for "essential" workers who work in the field and are more prone to the potential exposure to COVID-19 are being given.
Hospital costs, mental health protection and rehabilitation including financial cover for families in case of unplanned death are all being considered. Also visible are reduced work hours to focus on medical aid and in-house motivational and phycological counselling sessions.
Boards are also upscaling the compensation paid across ranks (from executives to rank-and-file employees) to make sure that compensation programmes are aligned with the company's strategy and societal commitments, perceived internally as fair and equitable, and well suited for what is likely to be continuing market uncertainty.
All boards are realigning committee composition, remits and focus on outcomes to include visibly a ESG lens and a 6 Capitals lens. After all, the successful enterprise of the future will optimise human, environmental, brand, innovation, physical and financial capital.
The new age reporting frameworks and standards will drive the effort of boards to positive and visible action. The human capital enhancement will be the biggest delivered outcome of Black Swan Risk Management.
(The author is Non-Executive Chairman, L&T Finance Holdings Ltd.)
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