Risks Confronting Boards 2016 - Crisis Management & Diversity
March 20, 2017Download
The overall bleak outlook in terms of readiness for a crisis spared no organization.
Based on their responses, directors do not have confidence in their organization's ability to manage its next crisis; a mere 11% of directors feel their organization is well-prepared. Less than half of the directors indicated adequately prepared.
Throughout the survey, crisis management has not been seen as a key concern for boards until now. What can directors do to be better prepared and able to manage future crises?
A more positive outlook for public boards – 16% (the highest out of the 3 board types) responded that their organization is well-prepared for its next crisis with only 7% (the lowest out of the 3 board types) stating their board is not prepared to manage the next crisis.
A quarter of directors (the most out of all 3 board types) stated their organization is not prepared for the organization's next crisis. This more than doubles the 10% responding they are well-prepared.
Not-for-profit directors also responded with the least amount of confidence in the board's preparedness to manage their organization's next crisis – 4% responded well-prepared.
All this said, if you knew what the crisis was going to be, it would be easier to be prepared and feel confident in the crisis management plan. Adequately prepared in the case could mean boards are ready to take whatever hits come their way as best possible. Again, here we see uncertainty has an issue.
Last year, we explored the possibility that boards lacking term limits, age limits and diversity might lead to groupthink. We also inquired if policies addressing these issues have been employed to minimize groupthink. For this year's survey, we took a different approach, asking directors what type of dynamics are significant risk factors to a board's effectiveness.
Public board directors do not feel as though the absence of term limits or age limits are a risk factor to a board's effectiveness. Contrasted with those results, almost half of directors list groupthink as a significant risk factor.
Without some sort of diversity in a boardroom, is it possible to avoid groupthink? Groupthink, which can leave a group especially vulnerable when there is homogeneity of members' social backgrounds and ideology – and not just social/ideology – but experiences, tenure, types of companies, industries, etc. is a widely accepted psychological phenomenon that results in flawed decision making.
The second most significant risk factor they identified is unhealthy power dynamics. It can be argued that this risk could lead to less outspoken opposition with people failing to challenge those in power or those in power intimidating those who are not.
Private board directors are not concerned with the absence of term or age limits. Three other risk factors – major skills gaps, unhealthy power dynamics and groupthink – are above 40%.
Interestingly, private boards' results for absence of term and age limits and the lack of diversity are nearly identical to not-for-profit boards. Both of these board types are far more concerned about diversity goals than public boards.
Lack of diversity tops the not-for-profit's list of most significant risk factors tied to ineffective decision- making processes. Last year, when we asked directors if their boards employed diversity goals, almost 70% of not-for-profit directors indicated they do. Despite the high employment of diversity goals, when asked to define their board's understanding of diversity issues facing the organization, only 16% stated we are well-versed.
As businesses are affected by the speed of technology and the changing human condition, diversity of thought in the boardroom is critical.
Chief Risk Officer
The lowest we are well-versed risk areas are cybersecurity and social media out of the 9 key issues; ironically cybersecurity and diversity show the highest percentages for we are falling short. Across all 3 board types, from 2015 to 2016, confidence fell in the cybersecurity category of we are well versed in from an overall 14% to 6%; however, for the same risk some are better versed than others saw an increase from 38% to 46%.
What this might mean: Cyber is a much bigger and more targeted issue than boards originally thought, so it's rational that not everyone can be an expert on the board about cyber. Being aware of this is paramount to effectively handling this risk; and having the proper experts in place is considered
a best practice.
This is also why having a diverse board in the sense of experience and expertise is crucial in today's business world.
Concerns About Risks Confronting Boards - 2016 Survey Results