In times of economic upheaval and great uncertainty, the corporate governance system introduced by the board has been tested in practice. With the rising levels of uncertainty in 2025, corporate board members are under increasing pressure to prove that the company's growth plans are reliable, adaptable and sustainable. The cracks and flaws in the board outlined to investors will be scrutinized this year as the reality of the world trade war, supply chain turmoil and the horror of a recession have surprised investors.
Is your board ready to navigate your company well through this current crisis of risk and uncertainty? If your company is not yet there, it may be a good time for the board and management to identify potential risks your company may face in this environment of economic uncertainty.
Hersh Shah, CEO of IRM India Affiliate, has finally outlined 12 risk factors, a leading global provider of education and training for risk professionals. In a recent column, he wrote: “The collapse of well-known companies has reinforced the urgent need for enforcement decision-making and robust checks of board-level diligence. These failures not only undermine investor trust and destroy value, but also expose companies to legal penalties and reputational erosion, placing independent directors on important personal and professional risks.”
“… The ability to identify potential risk factors can be dissociated from the company before an independent director takes corrective action, demands accountability, or, where necessary, reputation or legal exposure becomes irreversible.”
Shah's list of 12 risk factors should encourage corporate board members to actively protect potential governance lapses that could cost the company's money and directors of the company. The economic uncertainty unlocked in the first quarter of 2025 should warn all business committees of potential issues they may face throughout the rest of the year. These risks aren't necessarily new, but it's rare for many to test a company at the same time that it could happen this year. Corporate Board members should consider the following:
The board and management will be coordinated for risk mitigation in 2025. Preparing for risk is difficult if there is no agreement on what the main risk is. The Shah risk list includes “false incentives and excessive risk taking,” “lack of upper risk culture and tone,” and “fiscal misreport and accounting irregularities.” While these risks are not an issue for every company, reaching an agreement that affects the organization most is the first step in solving a potential problem. Good governance requires boards and management to have a process in which organizations can discuss and resolve these types of difficult issues. This year, you will need to test whether a company has a good process to identify risks, or if it needs to be improved.
Check and upgrade your company's D&O insurance level. While organizations have a risk management process, planning an accident is part of the process. In an age of uncertainty and economic volatility, corporate committees often become lightning for scrutiny and can become targets of litigation when corporate decisions are questioned. Having enough D&O insurance will protect your company's directors and companies from financial losses from lawsuits.
It communicates shareholders timely about plans to address significant risks. Shareholders know when the company is under pressure. If they identify risks that the board has not addressed, that is a big problem. Many companies had to explain to shareholders how to handle this year's tariff increase. It is important that the board of directors demonstrate that it is in addition to mitigating risks that could affect the company's financial success.
