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The role of the board in preparing for extraordinary risk

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The role of the board in preparing for extraordinary risk

Risks that threaten a company’s existence require unique interventions from the board.

McKinsey,

5 min read
3 take-aways
Audio & text

What's inside?

Risks that threaten an organization’s existence are not business-as-usual for boards. They need to wake up.

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Editorial Rating

8

Qualities

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  • Concrete Examples
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Recommendation

Risk management isn’t what it used to be. Today, boards must consider risks of remote probability that might have potentially deadly consequences for their organizations. Managing such existential risks is the board’s responsibility, but how should boards proceed? No company can insure against everything, and even where insurance is available, it may prove too costly. In this McKinsey podcast, host Sean Brown talks to the consultancy’s experts, Nora Aufreiter, Celia Huber, and Ophelia Usher, about steps that boards can take to face these challenges. Board members and senior managers in every industry should be aware of their advice.

Summary

The COVID-19 pandemic showed that many organizations cannot handle major risk. 

A survey discovered that fewer than half of board members think their organizations are sufficiently prepared for the next critical risk. Risks such as the COVID pandemic may have a low probability, but they can be devastating when they materialize. The textbook approach to dealing with various risks used to be calculating the value at stake and multiplying it by the likelihood of a particular risk occurring. The lower the probability, the less concerned a board had to be. Today, however, boards must treat all such risks as possible.

Boards and executives often receive advance indicators of a trend or a risk developing. For example, board members understand that nurses will one day retire, but the increase in early RN retirements attributable to COVID-19 poses a much higher level of risk to those healthcare companies that can’t function without...

About the Podcast

Nora Aufreiter, who serves as a director on the boards of Scotiabank, Kroger, and Cadillac Fairview, is a senior partner emeritus in McKinsey’s Toronto office and a senior advisor to the firm. Celia Huber is a senior partner in McKinsey’s Silicon Valley office. Ophelia Usher is an associate partner in Stamford, CT. Sean Brown is director of global communications and external relations for the firm’s Boston-based Strategy & Corporate Finance practice. 

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