Director, Board and Corporate Resilience

Directors, Boards and businesses generally usually need to be resilient in order to cope and remain relevant as developments occur and events unfold, for the next generation of board members, resilience should be an expectation, motivator, priority and selection criterion. Many directors become accustomed to economic cycles, changing customer priorities, requirements and tastes, competitor moves, innovations and scientific and technological breakthroughs, and the appearance of alternatives and new entrants to the marketplace. They may take little for granted and regularly undertake reviews. They try to be prepared for what might happen next. Addressing difficult issues on board agendas is what directors do.

If resilience has always been required, especially in the early and growth stages of an enterprise’s life cycle and during uncertain and tough economic times, why has it become such an issue for so many contemporary corporate boards? What has changed? Why are more people worrying about their ability to handle adversity and that of their organisation, community and society to cope? The nature of the challenges that confront us, their scale, combination and cumulative impact, and the inter-relationships between them suggest that individual corporate responses may not be sufficient to address existential threats.

Many contemporary challenges are global rather than local. Tackling environmental damage, declining biodiversity, the depletion of natural capital, global warming and climate change will require collective effort and responses. Scientific evidence and authoritative reports from national and international organisations suggest we are not doing enough and that many current corporate operations, business activities and lifestyles are unsustainable. The time available before certain adverse trends become unstoppable is rapidly diminishing. How might our companies, communities, societies and their infrastructures become more resilient?  

Understanding Resilience

Resilience, whether of individuals, workgroups, organisations, communities or societies is concerned with ability to respond to, cope with and recover from challenges, crises, shocks, unexpected events, difficult situations and, importantly, remain operational and viable in what may be a changed situation and/or context. Ideally, recovery from adversity should be to a better place in terms of relevance, viability and competitive and/or collaborative advantage. 

Entities in different categories often vary greatly in the extent to which they have foresight, are prepared, and are also flexible and resilient. There may be limits in terms of the number of times recovery is possible and the degree of disruption or pressure that can be coped with. People and organisations may only be able to take so much. They can be worn down. There may no longer be sufficient bandwidth or reserves to deal with what finally breaks the camel’s back. The full and cumulative impact of changes and developments are not always immediately apparent, so premature relaxation and celebration of success should be avoided.

Directors should heed the Scout motto and “Be Prepared”. Boards should explore and determine where and in relation to what activities, capabilities and relationships a company might most lack resilience. Resilience deficiencies could occur in a rationale or purpose, a business model, financial arrangements, a reputation or sources of support. Assessing and enhancing resilience requires vigilance, looking ahead and continuing commitment and adaptation. Varying levels of resilience across different units and/or arenas can influence each other and reinforce or undermine corporate and wider collective resilience.

Elements of Resilience

Within a board, views may vary on what constitutes resilience. For many, it’s the ability and/or capability to respond, cope, recover and remain operational and viable as challenges arise and changes occur in an entity’s situation, circumstances and context. This can require both flexibility and durability. Initial resistance may need to be followed by tenacity. Resilience can involve adaptation, innovation, transition and transformation in response to an initial shock and/or continuing pressures. All such reactions should be responsible and sustainable in relation to their practicality, impacts and resource requirements.

Resilience also requires agility and versatility, or the capacity to adapt to change regardless of whether a challenge or event is foreseen or unexpected, or whether it is a severe crisis or minor inconvenience. It can also demand endurance and the determination to continue, which may reflect purpose and what an entity is seeking to achieve. What is at stake can also be important. People may be more willing to endure, resist and respond if a vital interest is at risk rather than a peripheral matter of little concern that might not directly affect them.

Other things being equal and compared with those who are disinterested, motivated people may be more willing to put themselves out and make an effort to cope. Executive and board leadership and the purpose, vision, goals and objectives they articulate, might or might not engage, inspire or motivate depending upon whether they are perceived as appropriate just and capable of achievement. People may put themselves out for a cause they believe in. However, in many cases this may only be to the extent of what they believe is possible.   

Resilience Considerations

The degree of resilience displayed by each activity, team and/or capability of a company or other entity can depend upon a number of factors and different combinations of them. An issue, challenge or event could be isolated and unique, or it might be common and shared. The former may be more likely to put a particular entity at a competitive disadvantage. There can also be degrees of challenge, disruption or pressure and they may vary in nature, scale and intensity, which may wax and/or wane over time. The dynamics and interactions of risks, resistance and reactions can also increase or decrease over time.

Those impacted later by an occurrence or situation may be able to learn from the experiences of those affected earlier. Help and support received from others may also reflect the situation, circumstances and context, and whether, where and when assistance might be available. In some cases, collective preparations and responses may be cost effective where there is agreement on remit, eligibility, objectives, priorities, coordination and management, and the allocation of costs. Motivation to act may depend upon the extent to which realities are recognised, who is affected or likely to be impacted, and what is at stake, costs or benefits.  

Continuing pressures and a succession of events can sometimes overwhelm precautions and defences, exceed tolerance and resilience limits, and complicate adaptation, recovery and other responses. Impacts and consequences may also be delayed and cumulative. In some cases they might arise at any time, such as an incident of catastrophic flooding released from glacial lakes as global temperatures increase. India is one of four countries accounting for up to 15 million people at risk. With some existential threats, a local, wider or general breaking or tipping point might be reached at any moment, complicating monitoring arrangements.

Individual and Group Resilience

Those who see themselves as partners in the pursuit of a cause may be more resilient and willing to adapt and change than dependent and temporary mercenaries. The latter may become defensive, withdraw or move on when the going gets tough, rather than persevere and actively explore ways of furthering shared objectives. The former may persist rather than desist in similar circumstances, exhibiting the fluidity to move around and through obstacles and barriers. They may also bounce back, recover, regroup and go again. Should resilience be an explicit criterion for more executive and business partner appointments?

Excessive specialisation that might be beneficial in a more stable environment can become a handicap when inappropriate or of only temporary relevance in an evolving situation. Multi-skilling and practical problem solving may be more useful and valuable in dynamic contexts. Differing requirements and people can come to the fore as events unfold. Greater diversity within a workgroup or business unit may increase the likelihood of relevant responses. Experimentation, action-learning and rapid and continuing reskilling might be required.

Some directors may owe their board appointments to particular strengths or specialisms that were thought by a nomination committee to address an identified gap and complement the skills, experience and qualities of other board members. In uncertain and volatile contexts and more fluid circumstances such as on transition and transformation journeys to more sustainable operations, might openness, versatility and willingness to learn, adapt and change become more important than past qualifications, experience and specialisation?

Organisational Resilience

Shared assumptions, traditional practices and long-held views may need to be questioned. Established practices and widely used approaches, frameworks, structures and tools may be obstacles to resilience. Traditional strengths and weaknesses may not relate to contemporary threats and current opportunities. Lessons from the past and precedents might no longer be so relevant. Standards, norms and single solutions that once seemed helpful and were enforced may become outdated. Some boards might need to ‘let go’, encourage more critical thinking and coordinate and encourage rather than control and enforce.

As windows of opportunity to address threats diminish, greater tolerance of variety might be needed as various possibilities are pursued simultaneously. Value chains are the source of many dependencies, risks of disruption and other vulnerabilities. It might be advisable to stockpile items that are scarce and/or vulnerable to interruptions of supply. Boards should also encourage monitoring of the reputation and brand, financial and technological resilience of entities they are dependent upon and that of the skills and talents of their people. 

Relationships can vary in importance, resilience and how robust they are. The more significant and strategic ones should be periodically reviewed. A board might wish to avoid activities, investments and relationships in countries with authoritarian regimes, compromised legal systems, or where people have very different perspectives, allegiances and views on matters such as the protection of intellectual property.

Community, Societal and Infrastructural Resilience

Entities, communities and societies that are democratic, inclusive and regarded as legitimate, and in which people who feel they have an emotional and financial stake, and whose aspirations and values they share, may be more resilient than those which do not have these characteristics. Some groups, communities and societies turn out to be fragile, while others may be surprisingly robust.  Within them, some entities are better corporate citizens them others. They focus on shared challenges and collective interests, while those which are self-interested and less responsible seek competitive rather than comparative advantage.

An eye should be kept upon the infrastructure and public services upon which an enterprise depends. They are sometimes taken for granted. Back-up generators may seem a luxury when power has invariably been available at the flick of a switch. Sometimes it is only when supply is interrupted and so outages occur that their importance is appreciated. Sadly, neither honesty nor competence can be assumed. Questioning and reversing the drive for connectivity might reduce the vulnerability of critical areas of technology to cyber risks. 

Interdependences and vulnerabilities

Resilience and risk are inter-related. Varying levels of each or both across different arenas can influence each other and reinforce or undermine corporate and wider collective resilience. Resource sustainability in areas such as food, water and energy is an issue for communities and wider societies and their supporting infrastructure as well as companies. All entities may be impacted by the resilience of public services. Many corporate activities are affected by societal challenges such as health, housing, transportation and security. 

One authoritative source of informed opinion on global risks is the annual global risks report of the World Economic Forum (WEF). The report for 2023 draws upon views of over 1,200 experts drawn from academia, business, Government, the international community and civil society collected between 7^th September and 5^th October 2022. It produces separate severity of risk impact rankings for both a two-year and a ten-year period. Eight risks appear in varying orders on both rankings. The cost-of-living crisis which directors encounter in some countries tops the two-year ranking, but it does not appear on the ten-year one. Biodiversity loss and eco-system collapse is in fourth place on the latter, but it is not on the two-year list.

Six risks in terms of severity of impact over ten years are environmental, the top three of which are failure to mitigate climate change, failure of climate-change adaptation and natural disasters and extreme weather events. Climate change is also one driver of the risk of large-scale involuntary migration. Particularly evident in the WEF ranking of global risks is their inter-connectedness and the inter-relatedness of their causes. Greater connectivity and digital developments ensure that widespread cybercrime and cyber insecurity remains a severe risk. Large-scale involuntary migration, erosion of social cohesion and societal polarisation and geo-economic confrontation also feature on both the two and ten-year rankings.

Corporate Reactions and Collective Responses

Challenges to resilience are often exogenous. Events and difficult situations may arise that are unexpected. Boards can find themselves confronted with crises that are not of their own making. How directors react to surprises can sometimes be as important as their proactive initiatives. To progress they need to remain players and recognise and address realities.

Despite efforts of many directors and boards, and some steps in the right direction, hitherto collective responses have been too little too late. Some directors and boards appear to be in denial or lying low and distracted with other priorities. The focus of key decision makers is often upon perceived narrow, self, vested and national short-term interests. Some adopt ‘free rider’ strategies. They leave heavy lifting to others in areas such as opposing aggression and supporting its victims or incurring the costs and disruption of rapid decarbonisation.

Some reactions are characterised by avoidance and procrastination. Delaying expenditure on increasing resilience can result in much greater costs in the future Disagreements occur and responsibilities within and across entities are sometimes fragmented and split rather than aligned and coordinated. Policies, priorities and resources are also often misaligned. Risks and existential threats may be recognised and listed in risk registers without being addressed.

Resilience and Corporate Boards

Sensitivity to connections, linkages, inter-relationships and interdependences and an ability to simultaneously monitor activities and projects with multiple purposes could be significant elements of a resilience perspective. Other things being equal, a diversity of perspectives and different ways of thinking in the boardroom can be advantageous. So too can be keeping an eye on areas of vulnerability, such as cash flow or the availability of minerals in short supply.

A board may wish to keep spirits high, but directors need to be realistic. They should foster preparedness and vigilance, and address identified areas of risk and vulnerability. The latter may be outside an organisation or group and at weak points in extended supply and value chains or in the provision of external services on which operations depend. Staying away from them as a result of excessive caution that inhibits necessary action to address an existential threat may result in greater harm, for example from extreme weather events.

As the time available for responding to existential threats diminishes, more activities and initiatives may have to be pursued in parallel rather than sequentially. Boards may no longer have the luxury of commissioning reports on the best option, selecting and implementing one and where it does not work amending it or repeating an exercise. Instead, diverse options may need to be explored, not all of which may succeed. In some cases, there may be unwelcome unintended consequences. More boards may need to balance risks, rather than avoid them.

Reviewing and Enhancing Resilience

Resilience should be regularly reviewed and actively enhanced. Financial and other forms of resilience such as ability to cope with interruptions of the supply of critical materials, metals and components, or the loss of key customers, could be stress tested. Circular economy, recovery, reuse and recycling options could be explored. Mission critical and other processes can be modelled and simulations run to identify bottlenecks. Exercises could be staged to assess board and management responses to various scenarios. These could be regular elements of director, management and high flier development programmes.

Particular attention should be given to highlighted dependencies and vulnerabilities. Speed, ease and cost of access to what might be needed in certain scenarios can be especially important. There may be a case for shortening, repatriating and/or reshoring supply chains and incurring short-term cost penalties to reduce disruption risks. Boards should avoid having too many corporate eggs in one or a few baskets. Some directors might advocate revisiting the case for diversification rather than further specialisation and concentration.

Board policies, priorities and decisions should improve rather than compromise or reduce resilience. Like sustainability, resilience could be a criterion for the evaluation of proposed initiatives, innovations and possible investments. Reviews of contractual provisions might identify vulnerabilities, such as where a company is or could be locked in for too long or lacks flexibility. Too many boards find their attempts to adapt and change, constrained or even prevented by past commitments and arrangements established in a previous era.

Attainable, Affordable and Responsible Resilience Future directors, boards, organisations, communities and societies will need to be more resilient. Resilience is rarely unlimited or cost free. Many boards seek levels and forms of resilience which their members collectively decide are attainable, affordable and responsible in relation to what they are seeking to achieve, available opportunities and the challenges and threats that confront them and those for whom they are and/or feel responsible. IOD activities and events are designed to help directors explore what is possible and learn from their peers.