Governance and crises: how to adapt strategy to a changing world
Whilst new models emerge and priorities shift, one thing remains constant: good governance can help businesses navigate often complex waters and weather the storm, seizing opportunities for growth as they arise
(Il Sole 24 Ore Radiocor) - Against a complex global backdrop, geopolitical crises have a direct impact on companies’ profitability and operations, turning instability into an internal variable. The escalation of trade wars and the ongoing conflicts in Ukraine and the Middle East have had a significant impact on energy costs, on the one hand driving up companies’ expenses and, on the other, reducing exports in the ‘Made in Italy’ sectors, whilst global tensions are forcing a rethink of supply chains.
The escalation of risks is, moreover, pushing the world towards a post-globalisation phase, with nation states resuming a more central role in shaping trade and alliances. Furthermore, governments are focusing on domestic economic priorities, concerns about immigration and defence. Furthermore, economic decoupling and technological fragmentation can slow productivity and reduce growth, thereby also putting pressure on businesses’ resilience. Establishing sound governance may prove essential for businesses to better tackle difficulties and seize any opportunities that may arise.
Governance – everyone’s talking about it, but what is it exactly?
Geopolitical developments have therefore now become a regular feature of corporate board meetings, not merely as a topic for discussion, but as a direct driver of decision-making. Energy, cyber risk, technology, raw materials, trade routes and regional conflicts can no longer be viewed as separate phenomena, but form part of a single ‘polycrisis’, in which risks feed off one another and spread at a pace that is increasingly difficult to manage. Risk can no longer be addressed solely from a technical perspective; in other words, it is no longer enough to react to risks; rather, they must be anticipated, interpreted and integrated into strategic decisions.
This is where corporate governance comes into play. Without delving into complicated academic discourse, it is worth noting that the term ‘governance’ refers to the set of rules, processes, roles and relationships through which an organisation, a company or a public body is directed, controlled and managed. It defines who holds decision-making power, the responsibilities and the methods for achieving objectives whilst respecting stakeholders. In the business world, corporate governance is the system that balances the interests of the various stakeholders (shareholders, employees, customers, suppliers and the local community), with the aim of ensuring transparency, preventing conflicts of interest, protecting investors and guaranteeing the company’s long-term sustainability.
How can it support businesses?
Good governance helps businesses grow sustainably, whilst protecting them from risks. It provides clear rules, transparency and effective decision-making processes, thereby boosting investor confidence, attracting capital and facilitating expansion, even into complex foreign markets. According to a study by Bocconi University, in risk management, the role of governance is crucial in overcoming the succession of shocks that looks set to continue for some time. Analyses show that, whilst companies tend not to take risks into account when choosing where to locate, the presence of structured governance significantly mitigates this tendency. In other words, good governance can reassure entrepreneurs when making investments, increasing the likelihood of success, all other things being equal.
Strategic governance to tackle disruptive events?
In a context where ‘black swans’ – disruptive events considered highly unlikely – are becoming increasingly frequent, the real question is no longer whether a new shock will occur, but when it will occur and how well prepared companies will be to deal with it. For this reason, governance must become more responsive, more strategic and better able to make decisions under conditions of uncertainty. It is therefore essential to prepare the company by taking action on strategy, processes, skills, capital and communication. The control, audit, compliance and risk management functions can no longer limit themselves to observing; they must provide concrete support to management in strategic decision-making, bringing scenarios, information and tools to the board of directors that are useful for decision-making. From this perspective, resilience is not merely the ability to withstand adversity, but also the ability to use a crisis to reorganise, invest and grow stronger.
