How COVID-19 Changed Risk Management and Strategic Planning

| Kira Ciccarelli

How Has COVID-19 Changed the Future of Risk Management and Strategic Planning?

No board director could have successfully predicted the magnitude of the COVID-19 crisis. However, unprecedented side effects of the pandemic have forced directors to focus on how risk management and strategic planning are evolving in a world that changes pace at the blink of an eye.

Changing Risk Matrices and New Elements of Operational Risk

The scale and scope of the pandemic has changed how directors are thinking about operational risks and risk matrices.

“For us, the biggest thing that changed on this front was how we looked at operational risk. It was important to take a fresh look at every risk dimension to see how it has changed. What does the new systemic risk look like? How do we know? How are we monitoring it? These are the questions we need to be asking.” -Phyllis Campbell

“Many of the risk matrices we had looked at as a board were not useful when the pandemic hit. We had not planned, even nonspecifically, for a situation in which we did not have access to our employees. Specifically, regarding risk matrices, older, more experienced directors tend to make the boards focused on old risks, which are basically operational: What will happen if a platform explodes? What will happen if trucks stop working? The risks of today are completely different.” -Sonia Villalobos

“It was paramount for us to activate the role of the risk committee and reevaluate how that committee is functioning and doing risk management assessments. The pandemic hit us the hardest when we looked at how we used to evaluate and mitigate risk. Our risk matrix will be changed forever because of COVID-19. It shined a light on the fact that our old risk management processes had not filtered down all the way through the organization.” -Mohamed Radwan

“People are going to take business continuity exercises much more seriously in the future. We now understand, at a visceral level, how much more fragile our strategic and operating landscape has become over the past 20+ years. We’re living the impact that social justice issues, public health issues, climate change issues, and more, can have on shareholder value. Boards are expanding their oversight of these potentially existential threats … and demanding more management focus … than they were before the pandemic hit.” -Donna Wells

Supply-Chain Issues Exposed

The pandemic also illustrated the extent of supply-chain gaps around the globe and how disasters like COVID-19 can quickly and drastically interrupt businesses even when one supply location is compromised.

“We didn’t realize what would happen when parts of the world were cut off from us. From a strategic standpoint, this will cause boards to reexamine supply chain and logistics in terms of the risks we’re willing to take. If inventories go down too much and you can’t get product in from another source, you’ve got an enterprise risk situation and you need to decide if you want to assume that risk or build more flexibility in your supply chain.” -Anna Catalano

“Whichever administration succeeds this one in the United States, they will both follow the direction of focusing internally on America, especially after COVID-19. It has made the vulnerability of American supply chains more exposed. When the pandemic hit, we had no masks and no ventilators because nothing is manufactured here. This will not be forgotten anytime soon, and it will bring an emphasis on self-reliance and taking care of Americans first.” -Rajive Johri

Cyber Risk Looms Ever Closer

Virtual meetings and moving entire workforces to conduct business remotely have made many directors realize they need to do more to keep up with technological disruption and cybersecurity as risk factors.

“The systemic risk of businesses has changed dramatically, and directors need a fresh lens on this. How are we looking at systemic risk today? It has morphed in its dimensions, particularly in the realm of cyber risk. When you live in a virtual world, cyber criminals are much better at using it. How are directors keeping their fingers on the pulse of this risk?” -Phyllis Campbell

“We had not looked enough at cybersecurity, which became a much greater risk with everyone working from home. It also showed me that many of the kinds of people on boards today are no longer the best people to manage current risk horizons. Eighty to ninety percent of board members are out of their depth with cybersecurity.” -Sonia Villalobos

Public Health Concerns Come to the Forefront

A public health crisis as extensive as that of COVID-19 has shown directors that, as a result of our global and interconnected society, steps must be taken to mitigate public health risk in the corporate world.

“This has taught us to expect more pandemics and disasters that mean we have to work from home. Keeping people working at home makes it easier to pivot in the future.” -Brad Neilley

“Virtual meetings will be good moving forward. The overlay here is public health. The average person and business are ill-equipped to know what to do going forward. Part of risk management has to include having a medical advisory or public health board. Hygiene is now a CEO-level matter from the First Aid Room, just like cybersecurity from the IT department earlier.” -Danesh Varma

 

Read Part 5: Corporate Responses to COVID-19 That Made Directors Proud

Return to Part 3: Boardroom Culture and Onboarding New Directors

Meet the Panelists

Phyllis Campbell is the Chairman for the Pacific Northwest region for JPMorgan Chase & Co. Previously she served as the president and CEO of The Seattle Foundation - the largest community foundation in Washington. Phyllis has served as an independent director for Alaska Air Group from 2003-2020. She previously served on the Nordstrom board of directors. She currently serves on the Diversity Advisory Board of Toyota and is a board member of SanMar. Phyllis is chair of the board of the US-Japan Council, as well as a member of the global advisory board of Women Corporate Directors. She serves as board member of the Allen Institute.

Anna C. Catalano has over 30 years of corporate experience and manages a diverse board portfolio, serving as member of the Board of Directors for Willis Towers Watson, Kraton Corporation, HollyFrontier Corporation, Frontdoor, Inc., and Appvion. In the not-for-profit sector, she is a Board Director for the Houston Grand Opera, President of the National Association of Corporate Directors Texas TriCities Chapter, a Co-Founder of The World Innovation Network, and a former national Board Member of the Alzheimer’s Association. Ms. Catalano is an expert on the topics of global business, board governance, strategic branding, and an outspoken champion of women in business.

Rajive Johri has 14+ years of governance experience, having led a variety of Fortune 500, private, and not-for-profit companies at the board level. Currently, he sits on the board at ConAgra Brands, Inc. on the HR & Compensation, Governance, and Audit & Finance Committees. Rajive’s specialties include enterprise risk management, cyber security, global business leadership, and business turnaround.

Brad Neilley is currently a Board Member at Princeton International Technology and a Board Trustee at William Patterson University. Prior to this, Brad was Senior Vice President at Avalon Bay (the largest multifamily REIT) and previously Worldwide Vice President and a member of three company Management Boards at Johnson & Johnson. He also holds an MBA in International Business.

Dr. Mohamed Radwan is the Managing Director and Board Member of Platinum Partners, a Corporate Governance Consultant with IFC (International Finance Cooperation) - World Bank, an Adjunct Faculty with American University in Cairo, and a NED on leading organizations in the MEA region.

Sonia Villalobos, CFA, is a member of the Board of Directors of Telefonica Vivo, LATAM Airlines, and EcoRodovias, with the first two being Latin American companies listed in the NYSE. She is currently the coordinator of EcoRodovias’ Auditing Committee and a former board member and president of the Auditing Committee of Petrobras. Up to the end of 2019, Mrs. Villalobos was also a finance professor in graduate courses at Insper, one of the most prestigious business schools in Brazil. Her 35-year-long professional career in finance encompassed sell-side and buy-side equity research, as well as private and public equity fund management. Mrs. Villalobos was the first person in Latin America to become a CFA charterholder, in 1994.

Danesh Varma is a Chartered Accountant and Director of junior exploration companies like Anglesey Mining plc, Buchans Resources Inc., Canadian Manganese Corporation, Minco Exploration plc., Xtierra Inc. as well as investment vehicles like Brookfield Investment Corporation, Crowd For Angels and Nine Point Senior Credit Fund.

Donna Wells has a decade of corporate governance experience and currently serves on two public boards: Mitek Systems (MITK) and Apex Technologies (APXT); and two private boards: Betterment and Happy Money. She previously served on the board of Boston Private Bank (BPFH). From 2010 to 2017, Donna was CEO of Mindflash Technologies, a private, enterprise software company. Prior to Mindflash, Donna led US marketing for both Fortune 500 companies, including Expedia and Intuit, and for digital disruptors such as Mint.com, where she was the founding CMO. She teaches entrepreneurship at Stanford’s Graduate School of Business and resides in Northern California.

About the Author

Kira Ciccarelli

Kira Ciccarelli

Lead Researcher of Diligent Institute

Kira Ciccarelli is the Lead Researcher at the Diligent Institute. Diligent Institute is the modern governance think tank and research arm of Diligent Corporation, the leading provider in board collaboration software. In her role, Kira works to conduct and provide high-level modern governance research to inform director decision-making and identify best practices. Before joining Diligent, Kira worked in a variety of data-driven research roles, including analyzing global aid funds to the UN Sustainable Development Goals (SDGs) and compiling a meta-analysis of political experimental findings for the Analyst Institute. She holds a BA in Public Policy from the College of William & Mary.