The overwhelming consensus of 192 public companies CBM And what we've recently looked into what is necessary to navigate our modern era of turmoil is the acquisition of strategic risks that don't need to drive innovation and continuous growth, and the capabilities needed to maintain benefits and market share along the way. “We work in a very dynamic market,” says Kathy Hannan, who works on multiple boards, including Otis Worldwide Corporation, Annaly Capital Management and Gingko Bioworks. “However, risk management and innovation are not mutually exclusive.”
Intellectual curiosity and “learning to be satisfied with complexity and change” are important in steering businesses in such an environment, she says. Both risks and opportunities arise from the disruption and businesses need to be proficient in identifying them. “You can't control the insanity, but you need to be well educated, informed, resilient and agile. It sounds like everything, but it's very realistic. If you're educated, you can connect the dots, see patterns in your data, and ask the right questions.”
“At the level that companies experience in virtually every sector, these qualities are more important than ever for board members to carry out their essential responsibilities.” CBMBoard investigations over the past six years.
When ranking the best attributes for monitoring in this dynamic market, 66% of participants cited “skills and background expertise” as the three most important ones, followed by “business understanding” (64%) and “correct boardroom culture” (53%). Learning opportunities are considered less keys, with only 7% of respondents valuing board education as the top three attributes, even less citing independent education (2%) or tabletop exercises (1%).
Causes of confusion
Technology (28%) and geopolitics (24%) are above the list of causes of confusion that are most interested in board members, with AI being particularly invoked by 82% of those who listed technology as concern. Michael Smith, lead independent director of Zebra Technologies Board, is one of the board members who are concerned that companies are not moving fast enough, and understands “the richness of change into business models that AI may have.”
“I'm worried that companies aren't immersed in learning deep enough to intellectually verify whether there is a deep strategic threat,” he says. The highly profitable companies, who are clear leaders in their industry, say they are vulnerable to digital native startups. “However, their AI deployment is highly operational and focuses on a kind of incremental efficiency that is not strategic and wants to save 20, 30% over time. These companies are ripe fat targets for digital disruption and AI disruption that threatens business models.”
Jeff Daly, former CEO of Farmers Insurance, who is currently on the board of Liberty Mutual and public Verisk Analytics, has seen it firsthand in the insurance industry where data tools abolish delivery models rather than products and send traditional insurance models frenzy. “Think about insurance 20, 30 years ago. People tend to go to agents they trusted or trusted their parents, and everyone got it. [insurer] That agent puts them down. Geico and Progressive have really changed the way consumers are developing brands they can trust. They pushed their business towards a more product focus because they really focus on lowering the price of the same thing on people when they see most ads. ”
Daily says AI is setting up a similar but powerful wave of confusion. “It would probably give the right companies an opportunity to get an equal footing as part of a company that is actually strangled. [in their sector]He added that Agent AI has the potential to become the next big destroyer. His point was AI [agent] It will probably be 92% accurate. People are probably 85% accurate. It's something I think using AI in the insurance industry, or even as a sales tool, will have a very quick impact on the retail side. ”
Find the alignment
Research participants agreed that effective monitoring of innovation and the threat of disruption would require alignment between the board and management team on an appropriate balance of risk growth. Nine of the 10 directors said the board clearly conveyed its views on risk appetite for management. And at the same rate, management and board said they agreed to the amount of risk the company should take to achieve its goals in the short term. That percentage drops to just 81% when discussing long-term risk-taking strategies. Overall, however, survey participants saw strong consistency between the board and manager at the level of risk they take to achieve their goals.
We were asked what attributes management should be agile in anticipating and responding to changes. Most directors said they “own a proper executive team” (72%), “clear and clear clarification of the company's material risk” (57%), and “understand important assumptions that encourage our strategy to be no longer true.”
On the board, 76% of directors chose “introducing the right executive team” as the most important attribute needed to anticipate and respond to changes. “We can no longer understand the important assumptions that drive the company's strategy that are no longer true” was the second most important (48%) followed by “company culture” (47%).
“Culture sets the tone of risk, sets the tone of collaboration, sets the tone of innovation,” says Barbara Adachi, who works for the board of directors of the former Republic International and the board of directors of two private companies. [but also] Trust them to try new things, take risks, and take risks even if they don't pan out. ”
Adachi points to the “failure as a success” philosophy of innovation giant Amazon as an example, noting that the companies she serves take a similar approach in introducing new products. Despite being ultimately killed, the attempt was not considered a failure. “If we hadn't tried, 'We could have taken market share?” she says.
These bets need to be strategic, she warns. “First, do you decide who you are and where you are? Are you an innovator or are you a fast follower? What are your positions, what are your differentiators? Will technology become a differentiator for you as an organization?
Such risks may be necessary today. “Being a 'fast follower of the right thing' has been a ok strategy in the past, but I don't know if that's true anymore,” he says, saying that as farmers and CEO of Bristol West, he has tried to bring diverse perspectives into the boardroom to gain a variety of perspectives on risk and opportunity.
Today he brings that same philosophy to his board. “Our value is to get management to think about other things. Rather than telling them what they should actually do, “In my experience, I saw X, Y, Z. You should think about how it applies to your business and what to do about it,” he says. “Unless you're a challenging management team, the board is not doing its job. You need to check [management] I really have the confidence that what they are doing is right and well-founded. Because if you don't go in the wrong direction or in a direction that is pretty obvious that the rest of the world is in it, you'll endanger the company. ”
In some cases, that may mean that who will occupy the top office is challenging. “If the board really thinks the company is on the wrong path, the most important thing the board does is say, “We're betting on the wrong horse, so I think this horse will lose the race. We have to choose a new horse.”
“Even the best management teams and boards aren't 100% right,” adds Daily.
