CHAPTER 02 Risky Business: The Board’s Role in Enterprise Risk Management
Looking Ahead: Key Enterprise Risks Facing Boards Risk exposure faced by a company will ultimately depend on a myriad of factors, including the organization’s industry, strategic plan and competitive landscape. Below, we discuss five key risks that, in our view, warrant prioritization by boards in the years ahead. Understanding the key risks facing a business and ensuring that directors and management possess the skills and expertise needed to tackle these issues are critical first steps in risk preparedness. 1. ECONOMIC HEADWINDS Given the cyclical nature of global markets, the next economic downturn is more a question of when than if . COVID-19 has heightened concerns of an economic downturn in domestic and international markets caused by the pandemic’s abrupt disruption to world economies. These concerns have been further intensified by growing geopolitical uncertainty, such as the 2020 U.S. presidential election and the implications of the U.K.’s departure from the European Union. In the face of such uncertainty, boards should consider the increased information flow regarding general economic and geopolitical conditions and their impact on company performance, and should re-evaluate the company’s financial scenario planning and stress testing. 2. TECHNOLOGICAL DISRUPTION Rapidly developing technologies such as automation, machine learning, blockchain and artificial intelligence have emerged as significant market forces reshaping the business landscape. Increasingly, as discussed in our Davies Governance Insights 2018 , 19 technologies are becoming more disruptive and in some industries intimately integrated with business strategy and
operation. As technological disruption is expected to increase, companies should focus on their ability to make necessary and timely adjustments to embrace and respond to the forces of change. As discussed in our Davies Governance Insights 2019 20 in the context of next generation governance organizations, resistance to change can be futile and ultimately lead to the demise of a company. 3. CYBERSECURITY THREATS While COVID-19 remains a major focus of boards, cybersecurity has emerged as a key related risk, particularly as many companies temporarily (and in some cases, permanently) adopt a work-from- home model. Management should understand when cybersecurity threats or breaches need to be escalated to the board. Relatedly, board members should have a clear understanding of the ownership of cybersecurity risk and whether that risk warrants or necessitates delegation to a specialized committee. For the CSA, the cybersecurity practices of Canadian public companies continue to be a priority area, reinforcing the need to develop robust practices and provide detailed disclosure about them. 21 As technological disruption is expected to increase, companies should focus on their ability to make necessary and timely adjustments to embrace and respond to the forces of change.
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