Almost 60% of companies are reviewing their business strategy as a result of the pandemic, while 43% of senior business leaders say Covid-19 is a fundamental threat to their organisations, according to new risk research.

The Leadership in Risk Management: European Report 2020, conducted by Board Agenda in association with professional services firm Mazars and business school INSEAD, finds that while the pandemic represents an existential risk to a huge number of companies, many boards have been able to respond robustly.

A resounding 96% of respondents say their controls and processes performed well during the crisis, while 80% say they are confident their response to the crisis was “clearly defined, communicated and monitored”. However, only 55% of the more than 300 chief executives, chief financial officers, board chairs and non-executives that took part in the survey could say their organisations were prepared for a pandemic.

Risk beyond the pandemic

The emergence of the global Covid-19 pandemic in late December 2019 placed risk management at the forefront in board discussions.

But the research also examines risk preparedness in other areas prior to the outbreak. Reflecting on risk before the pandemic became a global issue, seven out of ten of those surveyed say their boards were “sufficiently skilled” to address all the risks in their market sectors.

That’s reassuring because respondents say the risk environment has been expanding. Almost three-quarters say their boards have been confronted with “unexpected and unanticipated” risks in the past five years; nine out of ten say their companies face more risks than five years ago.

Despite that, half the respondents say their risk appetite did not change in the 12 months prior to the pandemic. And half say they have transformed the diversity of their boards to strengthen the response to risk management challenges.

Information gaps

However, there are concerns. Only half of those polled could say they received “all the information required to consider all the risks faced by their organisations”. While respondents’ knowledge in finance and regulation is solid (91% and 88% respectively) their knowledge of issues such as climate change (34%) and cybersecurity issues (38%) is low. This prompts concern that boards could be heavily exposed to risks they may not believe to be significant.

Writing for Board Agenda, Matt Dalton, head of risk management at Mazars, and Anthony Carey, head of the firm’s board practice, say the survey reveals room for improvement, especially in the area of poor quality information. “This undermines resilience and should be a wake-up call for many,” they write.

They are also concerned about the way boards consider the future risks their companies face.

“The crisis has been highly disruptive, and a key lesson is that we need to get better at scanning the horizon and considering preparedness for the unexpected. Only 55% prepared for a pandemic. Boards need to ensure they have good external antennae on key risks,” they say.

Attitudes to issues such as the environment are also a source of anxiety. “Boards need to address a worrying lack of knowledge over some of the major risk areas, in particular cyber and climate risk,” they say.

Unknown risks

Professors Enrico Diecidue and Tim Rowley of INSEAD agree.

“The findings of this survey provide food for thought for further conversation, questions, reflections and potential remedial actions,” they write.

The Covid-19 crisis, they argue in the report, reveals the need to prepare for unknown risks with “rigorous scenarios” while ignorance of climate change risk at board level needs to be confronted. They challenge boards to consider the processes that will generate risk evaluations and risk appetite and how they should be managed.

“Overall the survey underscores the need for boards to have a systematic approach to address risk evaluation and integration in the face of rapid change and uncertainties in the business landscape,” they say.

Read the full report here.