Remember when geopolitical risk was something boards addressed maybe twice a year? Those days are over. With most directors reporting constantly evolving business strategies, board oversight has shifted from periodic check-ins to continuous monitoring. EY Americas Center for Board Matters’ Pat Niemann maps how leading boards are embedding geostrategic thinking into their oversight and treating operational resilience as a marketplace differentiator.
The pace of geopolitical change has fundamentally altered how boards approach strategic oversight. What once required periodic attention now demands continuous vigilance, with boards needing to understand not just immediate risks but also their organization’s capacity to adapt and respond quickly to unexpected developments.
Leading boards are transforming their approach in several key areas from geostrategic discussions to crisis preparedness.
Embedding geostrategy in board oversight
Given today’s constant state of change, leading boards are stepping up their oversight of geostrategy, embedding the strategic implications of new legislation, regulations and international events in their conversations, including their assessment of how geopolitical developments may factor into the company’s strategic success.
In fact, this year, 84% of boards said they regularly assess the impact of political risk on the company’s existing strategy — more than double the 40% that did in 2021, according to an EY report.
Smart boards want to know whether the enterprise is gathering actionable information for early detection of changing dynamics. To gain confidence that reliable information is helping to clarify geostrategic risks for the enterprise, board agendas should provide a forum during which board members learn how management acquires information and from where. This is particularly important given today’s pace of change and how different the situations are that businesses encounter.
Testing crisis preparedness
Two-thirds of those boards indicated that they participate in scenario planning and tabletop exercises related to managing such geostrategic risks — triple the 22% who said in 2021. Board members who are not yet participating in scenario planning with the companies they govern should consider doing so. They can use scenario planning to develop their ability to respond quickly to change and push ahead with greater confidence.
While working through scenarios, boards gain a line of sight into the speed with which the enterprise they govern can act and address change. The best boards want to know whether the enterprise is gathering actionable information for early detection of changing dynamics.
Additionally, board audit committees are generally attuned to potential systemic risks. They oversee the company’s crisis playbooks, even as management watches for potential risks in the background. Escalation protocols — including the identification of leaders and their roles — are built into the plans and updated as needed to remain relevant.
What is more, they assess the results of practice drills, during which executives undertake mock response exercises to help those with a role to play in times of crisis understand what is expected of them and speed the crisis response time.
It’s Time for E&C Professionals to Have a Seat in the Boardroom
How can directors ensure ethical culture if they don’t really understand compliance programs?
Read moreDetailsAssessing operational resilience
In addition to overseeing the enterprise’s risk mitigation efforts, board members should know the enterprise’s operational exposures and the speed with which the enterprise can adapt amid geopolitical shocks. For instance, the board should understand whether the enterprise’s financial reserves could absorb a shock and withstand change in the economy. Do board members have confidence in the financial strength of their counterparties? How quickly can they pivot?
The board needs this understanding to help define the company’s risk tolerance and undertake an assessment to understand with confidence whether the company has the information, capabilities and processes required to succeed amid ongoing change.
The best boards also know the enterprise’s operational strengths and where its exposures may be. They use that knowledge to create their view of whether the enterprise can withstand the unexpected and adapt. They believe having that ability is a marketplace differentiator that can determine future success.
Notably, given the unpredictable change that is characteristic in global business today, nearly 73% of 200 public company board director respondents participating in a survey conducted by the EY Americas Center for Board Matters in collaboration with Corporate Board Member said their business strategy is constantly evolving. Six in 10 said they expected it to change within 12 to 18 months.
Additionally, the board member respondents identified obstacles to anticipating, preparing, responding and adapting to change, with disruption in their industry and across the economy being the most prevalent responses.
Strategic adaptability
Boards that adopt a longer-term view of the business — particularly its financial performance — are better able to support management as they update corporate strategy, respond to external events and set the company up for durable success.
As such, in uncertain times, boards can leverage their long-term perspective to help the company maneuver, plan for and adapt their strategy to manage future challenges more frequently.
They also create a strong alignment between their directors and corporate leadership to manage risks and create mutual understanding of the company’s risk appetite. For them, these two points are foundational elements of operating with the necessary agility to achieve strategic objectives and effectively respond to change. One might also say productively respond to change, capitalizing on opportunities without pushing pause.
Lastly, board conversations on these topics can promote agility by evolving the company’s strategy to keep pace with the evolving business landscape — even as they align on risks and learn to look at change as a potential opportunity.
As leader of the EY Audit Committee Forum, Pat Niemann is responsible for the EY Center for Board Matters’ audit committee services throughout the Americas, overseeing efforts to support individual directors and audit committees in their oversight roles. He previously managed Ernst & Young LLP’s Los Angeles audit practice and served other leadership roles. He is a graduate of the University of Southern California’s Marshall School of Business, where he is a recipient of the Leventhal Distinguished Service Award. He has been active in his local community, serving on numerous nonprofit boards working toward important charitable missions and civic causes. 
