Moving beyond theory
The roll out of the new Centre comes at a time of heightened scrutiny on the role of a board and on the importance of corporate governance.
The vast majority of board members take on the position with the best of intentions. However, as McCarthy sees it, it is crucial that board members are asking the right questions and focusing on the right areas, as opposed to just following the agenda being pursued by those reporting to them.
“In terms of risk management and in terms of strategy, board members need to be clear that they are focused on the right areas. Is the lens into the future going far enough? Are they too focused on short term issues to properly understand and deal with the issues that could pose an existential crisis to the company?” he said.
“Some of the classic risks won’t sink the ship. So, the question is: are boards focused on the very narrow range of really big things that could cause major corporate damage? I think that is the challenge.”
According to McCarthy, most boards were not anticipating a pandemic or a war in Ukraine. But those two events have been dominant themes in the boardrooms around the world in recent years.
However, he said that companies that had spent significant time preparing a risk register, and modelling out potential impacts, had fared better than those who had not, during that period.
“The role of the board is to challenge, approve, and hold to account on strategy. It is the executive who execute the decisions,” he said. “So, the board needs to concentrate on the important issues, and not get too caught up in the weeds. But on those important issues, they need to be thoroughly across the details.”
He added: “The board needs to know that the company is in a position to manage the top three, four or five risks that could capsize the company. And they need to be clear about what those risks are. They are the people who move something from a theoretical risk into an actual risk. And then it is about having honest conversations at a board level and challenging the management team on their plans.
McCarthy said that the pace of change in the world of business was accelerating at breakneck speed, and that it is becoming increasingly important for CEOs and their boards to develop multidisciplinary teams of experts so that they can critically evaluate how well placed they are to deal with the various fluctuations and challenges.
“It’s one thing to talk about change, but you can’t manage risk if you don’t understand what’s happening. I believe we’ll see boards increasingly challenge the skills, expertise and insight that businesses have at their disposal,” he said.
“They need to know that the strategies in place are robust and will protect the company. There are no silver bullets to a lot of the problems. But you must be as prepared as you can.”
