Strengthening Board Leadership in the Face of Global Turbulence
In an era of heightened geopolitical risks, CEOs are prioritizing strategies to navigate these challenges. However, for boards, the path forward may seem less clear. With increasing economic connectivity and fragmentation, the need for strong board leadership in understanding and mitigating geopolitical risks is paramount.
Geopolitical risk, now among the top concerns for CEOs in 2023, demands a proactive and informed approach. In our article, we delve into the critical role boards play in building and safeguarding resilient enterprises amidst geopolitical uncertainties. Drawing insights from our engagements with global corporations and our experience as board members and geopolitical risk experts, we propose frameworks and strategies for boards to consider.
Today’s global order reflects a paradox: unprecedented economic interdependence alongside significant geopolitical fragmentation. We explore this duality, highlighting the emergence of new powers and the competition for influence in a multipolar world. Amidst these shifts, boards are grappling with essential questions. How should companies adapt their operations within the complexities of geopolitical shifts? What approach should they take when weighing risks against opportunities in different markets?
Our conversations with board members reveal a prevailing sense of unreadiness to tackle these complex issues. Addressing multidecade investment planning, navigating intricate regulatory landscapes, and making critical geopolitical decisions are uncharted territory for many boards.
To thrive in this new era, boards must evolve swiftly. Our article outlines the strategic steps boards can take to effectively understand, monitor, and mitigate geopolitical risks:
- Understand: Boards must empower themselves with the necessary expertise to engage in informed discussions and decisions. This involves assembling a diverse board with relevant skills and creating committees that possess domain knowledge.
- Monitor: Leveraging frameworks like geopolitical risk dashboards, boards can effectively monitor risks tiered by exposure levels. This includes higher-tier markets that require the board’s focus, and lower-tier markets that are managed by internal teams.
- Mitigate: Boards should guide the development and application of risk controls. This encompasses building resilience in supply chains, reviewing insurance policies, and navigating regulatory landscapes. Developing a framework for engaging in geopolitically sensitive markets is crucial.
By aligning with management and upgrading their capabilities, boards can take a proactive stance against geopolitical risks. Through fostering expertise, ongoing monitoring, and strategic control development, boards can guide their organizations toward resilience in a rapidly changing global landscape.
Authors: Ziad Haider – Global Director of Geopolitical Risk, McKinsey, Singapore Jon Huntsman Jr. – Former US Ambassador to China, Russia, and Singapore, and Senior Adviser, McKinsey Chris Leech – Senior Partner, McKinsey, Pittsburgh
We acknowledge the contributions of Lucas Lim and Nina Spielmann to this article.