Getting Up to Speed on Emerging Risk: What Directors Need to Know

Tonie Interview

> Listen to Getting Up to Speed on Emerging Risk: What Directors Need to Know

Alyssa Abbott

Hi, my name is Alyssa Abbott and I am the Associate Director of the Gupta Governance Institute at Drexel University’s Lebow College of Business. I’d like to welcome you all back to BoardSpeak, our thought leadership series. I’m delighted to be joined today by Tonie Leatherberry the Board Relations Leader for the Risk and Financial Advisory Practice of Deloitte, as well as President of the Deloitte Foundation.

As companies are continuing to minimize the impact of the pandemic, I’ve heard directors discuss their need to understand emerging risks facing business and their stakeholders. I’ve asked Tonie to join me today for a discussion on just that. Tonie, thank you for giving us your time today. I want to start off our conversation today by asking you, what are you seeing as some of the emerging risks or familiar risks that are being amplified by the pandemic, that are of concern to companies today

Tonie Leatherberry

That’s a great question. The first one that I’m seeing really has to do with risks associated with the operating model and how to determine what that operating model should be like in the short term, then in the longer term, which you really can’t even predict right now. The operating model is really centered around three dimensions.

In my opinion, first and foremost is safety of the people of an organization and the consumers of that organization. So how do you keep both parties safe? What does that look like? What are the thresholds for which you may determine or have to make a decision around when you have to shut down operations again, or when do you open up operations? That is the first dimension.

The second dimension is medium to longer term, and that really stems around infrastructure and hard assets, such as buildings and sites. What happens to those in the medium to long-term because our business model may change, and how do we predict changes to those assets and what the operating model may look like medium to longer term? What decisions do we need to make around those assets, and what do we even do with those assets?

The third one is more classical in general but amplified now, and that is around technology. What are we doing to protect ourselves from exposure to risks, cyber, the newer technologies, even the technology we’re using today in this session around zoom, and how do you secure it? How do you make sure that you’re protecting information and you’re protecting those valuable internal conversations?

Maybe there is a fourth. I don’t know if I qualify it as a risk, it probably is a risk of the unknown, but it’s certainly a driver and that is; what is happening in the governmental/regulatory landscape and what decisions are going to be made at a local level and a state level that impact some of our decisions around opening up and the health and safety rules? That might be the fourth one that I would consider now that I give it an afterthought.

Abbott
Thank you Tonie, I think that speaks to your point about the difficulty in thinking about the long-term, because there still is so much uncertainty along that fourth dimension. I want to ask your perspective. How can directors better understand these emerging risks that are stemming from the crisis as well as their implications?

Leatherberry
I think directors are doing a great job based on the conversations that I am having with them. The one thing is making sure that they’re getting external perspective. We talked about government as an example, and some of the directors that I know are certainly actively engaged with understanding where state, local, and maybe even federal direction is headed so that they can kind of jockey. The other thing that I would say that is being amplified now is scenario planning and going through simulation exercises to say, “What if this were to occur, what actions should we take?” You keep playing the scenarios and running them through so that when we get certain signals, we have a little bit of muscle memory in terms of determining how we would act.

I think that scenario planning is extremely important right now to think about risk, risk management, and particularly coming up with a framework for decision making and designing that. Then, determine how you’re going to highlight who’s responsible for certain aspects or certain scenarios and making sure that you are running through those exercises, both with the management team, as well as with the board to make sure that it’s data-driven and rich in terms of what external information you can gather as well as internal information that you’re looking at. Come up with hypotheses about the future, you can’t predict the future, but what you can do is say, “if we had a hypothesis around if we can’t open up until January, what’s that scenario look like versus opening up two months from now?”

It’s really important to develop a set of hypotheses about that future and then run the scenarios based on that. Conventional wisdom just goes out the window with this. I think you even have to stretch your thinking, not to just consider how you react, but also what are the opportunities that you may not be exploiting. I think that’s very important in this scenario planning process as well.

Abbott
I think we’re all seeing, to your point, conventional wisdom isn’t totally effective in this new environment and really trying to plan and think outside of the box is going to be key to success for a lot of companies and a lot of boards. Along those lines of thinking, there are many unexpected challenges that are likely to still arise over the coming months, would you consider this a good opportunity for boards to work with management to review the efficacy and responsiveness of their company’s existing critical incident and systemic risk management policies, see how well that worked and make the necessary changes to move forward?

Leatherberry
Oh, absolutely. I think that would be a best practice and probably is something that boards and the management team in terms of shared responsibility should have been doing all along. But, right now is so amplified that again, that war gaming thinking about event-driven and whole world scenario planning is something that’s testing all of us. The more that you can exercise that and create a regularly scheduled set of activities around it I think is good. Of course, events will occur, we certainly recognize that a year ago no one could have imagined this. The more that you can use this as a lesson and think about what that possible or plausible future environment is, I think the better off you are.

Abbott
Thanks, Tonie. I would agree wholeheartedly that this is the time to really review those policies and use this as an opportunity to move forward. Is there anything else that you wanted to share with the group today related to these emerging risks and looking forward to the future?

Leatherberry
The only thing that I would share is around some of the issues and challenges we may face when we’re thinking about scenario exercises. We should keep these questions in front of us. Is my asset portfolio appropriately balanced? We need to think about that in both the short and the long term. Are there acquisition or merger opportunities? As I stated before, this might be the time to have an opportunistic point of view and not just a reactive point of view. How do I look at a significant investment and weigh the risk around that given this unforeseen future? Am I missing or underestimating important risks and am I constantly challenging myself to think out of the box and really understand where wildcards and disruption and discontinuity could reside?

We’re in the middle of dealing with COVID and then we’re faced with the recent hurricane, what impact those two worlds colliding has had on communities and business is just incredible. “Are we anticipating things that we haven’t baked into the model” is the challenge that I put forth. How can I ensure the successful launch of new services and products given this highly dynamic marketplace are there new capabilities that I need with my management team and my operational leaders to again, anticipate and adapt to a changing market? How can I effectively engage critical stakeholders going forward? As we all know, a board has an awesome responsibility around engagement of stakeholders. So, I would just leave you with some of those questions that should be posed when you’re going through this scenario planning and dealing with risk in this uncertain time.

Abbott
Thanks, Tonie. I think those are really good questions for the directors who are tuned into this conversation to be thinking about as they move forward and to challenge their management team to answer. Again, we truly appreciate you giving us your time today to discuss this topic. I also want to thank our audience for listening. I ask that our audience fills out the response form in the email you received to give us your feedback on today’s discussion. If there are any outstanding questions related to this topic, please send them our way, we’d be happy to answer them; as well as share with us topics you’d like to hear in future discussions. On behalf of the Gupta Governance Institute at Drexel University, thank you and take care.

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