What COVID-19 made clear: corporate governance needs to focus on the right risks

This is the second blog of our COVID-19 sustainable recovery series. Read our first blog 4 steps to a sustainable recovery from COVID-19 to find out what our CEO, Olivier Boutellis-Taft, envisages a sustainable recovery to look like.

Is corporate governance just a set of rules that we must reluctantly follow? Some seem to think so, focussing only on the burden and cost. They fail to see the added value of having proper governance in place.

I see corporate governance as the foundation for company purpose, strategy, opportunity and risk management. It enhances the quality of leadership and decision-making. The cogito publication 10 ideas to make corporate governance a driver of a sustainable economy has more on the central role corporate governance can play in redefining how businesses are run.

Corporate governance becomes even more important in the current context of environmental crisis, global pandemic, looming recession and social unrest. It helps us identify and respond to the right risks. We need to realise we are quite bad at risk management. We were totally unprepared for the pandemic, even though scientists and the World Economic Forum had been warning us.

We need to use the lessons that the COVID-19 pandemic has taught us and start looking at the right risks, meaning: climate, biodiversity loss, natural disasters and human-made environmental disasters.

The COVID-19 lockdowns made CO2 emissions drop by a historical 6%. But this has appeared to be only temporary. And we would need to keep up this decrease every year for the next ten years to maintain a liveable planet. This reduction did not result from structural change and we seem to be striving to go back to business as usual.

So, what does this mean for corporate governance? We need to change our priorities and start by identifying the right risks. There is no point arguing over shareholder versus stakeholder value while we continue to destroy the conditions for life on earth.

This crisis shows once again that it is time to transform the way we do business. Therefore, the priority for Boards is to review the business model and think in new ways about risk management and resilience. This requires a lot of diverse and lateral thinking and boards will benefit from engaging with unlikely bed-fellows from climate scientists to socio-psychologists and biostatisticians .

If boards take on the responsibility to fully leverage corporate governance to manage the biggest risks and transform their company’s business model, there is hope for us to survive and reduce the damage to our planet. From my side, this is the best lesson that we can all learn from the COVID-19 crisis.