Thumbnail: 

After three years of uncertain economic and market conditions that show little sign of abating, boards ought to adjust to this new normal and develop strategies that balance risk and opportunities and that are far more nimble than those of the past, notes Deloitte Touche Tohmatsu Limited in its "Directors’ Alert: 12 Issues for 2012".

"The initial response that many companies had to the 2008 financial crisis was to employ the same strategies that carried them through previous recessions: downsizing staff, reducing operations, and postponing investments until economic conditions returned to normal," says Dan Konigsburg, Managing Director, Deloitte Global Center for Corporate Governance, DTTL.

"However, after more than three years of uncertain economic and market conditions, waiting until conditions return to ‘normal’ isn’t an option. Boards should adjust to the new normal and develop the necessary strategies to help keep their companies competitive in the long-term," he continued.

According to the report, for companies sitting on sizeable cash reserves, one of the key challenges is determining the best use for the cash they have in hand. "Boards should assess the risks of protecting that cash," adds Konigsburg. "Given that we are unlikely to return to pre-2008 conditions, organisations may be at risk if they wait longer to reinvest in their infrastructure, people, research and innovation, and acquisitions."

In a tight talent market, it is particularly important for boards to understand the strategic and risk implications associated with their organisations’ talent management strategies.

"Perhaps now more than ever, businesses absolutely cannot lose sight of their top talent," adds Konigsburg. "However, developing and retaining talent is increasingly difficult when the organisation itself isn’t growing enough to create sufficient opportunities for people to build their management and leadership skills."

Given the continued volatility in the markets, boards will need to continue to be vigilant about the risks that exist in the marketplace. However, one of the questions raised by Directors’ Alert is whether "risk is now over-dominating boardroom discussions."

According to Konigsburg, "boards that once focused too exclusively on the upside of an opportunity may have since adopted a highly intensive risk focus that may cause them to see only the downside of risks, leading to a risk paralysis—being afraid to act on an opportunity that would create value for the organisation today."

In response, organisations should develop a risk intelligent culture that fosters 'smart' risk-related decision-making, in which the organisation would determine how much risk it is willing to take on and how those risks will be managed and mitigated so the organisation both preserves and creates value.

MORE ARTICLES ON RISK MANAGEMENT

Quote Image: