DUTIES OF D&OS IN ANTICIPATING AND REACTING TO CORPORATE CRISES
RC: In general, do you believe directors & officers (D&Os) pay enough attention to anticipating and reacting to corporate crises? To what extent are such events constantly evolving?
Woo: In conjunction with Forbes Insights, we surveyed more than 300 board members and more than three-quarters of respondents – 76 percent – believe their companies would respond effectively if a crisis struck tomorrow. Yet fewer than half say they have engaged with management to understand what has been done to support crisis preparedness. And only 49 percent have playbooks for likely scenarios. Even fewer, 32 percent, say their companies engage in crisis simulations or training. We believe the reason companies are not more actively preparing is driven by overconfidence in being able to handle anything, an overly optimistic viewpoint that a minor brushfire will not become a wildfire and a belief that the company’s systems are more resilient than they really are.
Loeb: D&Os are not sufficiently engaged in crisis risk governance. But given the dramatic escalation in corporate crises – roughly 1000 percent over the last decade – D&Os are now fully accountable for crisis risk governance, including reputational risk. Though a growing number of boards oversee threats to their company’s reputation, a considerable business deficit exists in grasping the value of reputation, both as a strategic asset and risk. Furthermore, few organisations possess adequate capabilities and management strategies to mitigate, prepare for and build the resilience to manage crises and recovery effectively. Since reputation risk is not hedgeable, companies are challenged that much more by the strategic imperative of holistic risk management design. As the complexity of this century’s business and global risk expands, boards are recognising that new crisis risks can destroy organisations in ways that were not possible even five years ago.
Jul-Sep 2017 Issue
Deloitte & Touche LLP
Hiscox Special Risks