Boards and corporate governance: As businesses face the complexities of the 21st century, resilience has emerged as a defining characteristic of success. In the era of frequent disruptions and unforeseen events, resilience is no longer just an ideal but a pragmatic necessity. It is a call to action that extends beyond financial health, addressing the broader spectrum of vulnerabilities and imperfections every organisation encounters.
One might wonder why organisations feel the need for resilience only after setbacks in their sector or region, with no follow-up action thereafter. Understanding resilience must be recognised as a critical board mandate. In today’s dynamic and unpredictable business environment, where disruptions are the norm rather than the exception, the ability to weather storms and emerge stronger is not merely desirable; it is essential.
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Board’s role in achieving resilience
Resilience, spanning financial, operational, and organisational dimensions, underpins a business’ capacity to adapt, survive, and flourish. Boards play a pivotal role in shaping a resilience strategy, ensuring it is embedded in the corporate culture, risk management practices, and strategic planning.
Recognising resilience as a key board mandate is a commitment to long-term sustainability and success. It acknowledges that proactive resilience-building is an investment, not an expense. Understanding resilience is no longer optional; it is imperative for boards to fulfil their fiduciary duty and safeguard the interests of shareholders, employees, and stakeholders alike.
Resilience can be categorised into three primary types: financial, operational, and organisational. However, an unsettling trend persists: many Indian boards predominantly focus on financial resilience, often limited to meeting regulatory capital adequacy norms.
Financial Resilience is perhaps the most visible facet, and boards frequently focus on it to an almost exclusive degree. It pertains to an organisation’s ability to withstand economic downturns, navigate market volatility, and maintain a strong balance sheet. This involves scrutinising creditworthiness, liquidity, cash flow management, and the ability to adapt to financial shocks. While undeniably crucial, an overemphasis on financial resilience can be likened to an athlete training only one muscle group, neglecting the overall strength needed for peak performance.
Operational Resilience refers to an organisation’s ability to maintain uninterrupted business operations, even amid unexpected disruptions. This involves robust contingency plans, supply chain diversification, and adaptable technology infrastructure. Operational resilience protects against disruptions caused by natural disasters, cyberattacks, sudden shifts in demand, or mass employee departures, allowing organisations to remain agile and responsive.
Organisational Resilience goes beyond the financial and operational realms, encompassing the culture, people, and strategies that support the organisation. It includes adapting to changing market dynamics, embracing innovation, and aligning the workforce with evolving business goals. Organisational resilience is about fostering a strong, agile, and engaged team capable of navigating uncertainty with creativity and adaptability.
Indian boards must recognise that these three types of resilience are interconnected and mutually reinforcing. A singular focus on financial resilience, without equal attention to operational and organisational resilience, can leave an organisation vulnerable. Boards that adopt a holistic view of resilience are better equipped to thrive in an environment where change and uncertainty are constant, and challenges are diverse and multifaceted.
A narrow focus on financial resilience is akin to analysing a complex painting through a keyhole—it offers a limited view and misses the intricate details that form the bigger picture. While stability and resilience are often used interchangeably, they are distinct concepts. Stability refers to the absence of instability, where any significant departure from a historical norm is corrected, returning the system to equilibrium. Resilience, on the other hand, is the art of addressing points of instability in a way that prevents recurrence, or even in a manner that durably resolves lurking risks.
The absence of resilience or stability in any part of a business creates a ripple effect, leading to a fragile equilibrium—a delicate balance that can be disrupted by the smallest of variables, even those that appear to be within normal ranges.
In essence, resilience demands a holistic approach, addressing all potential risks across the various silos of business operations. While financial strength is crucial, it should not overshadow the importance of operational and organisational resilience. Boards must broaden their vision to encompass the overall health of their organisations. Attentive and proactive boards foster resilient organisations, and this synergy is vital for achieving sustainable success.
In this era, crises are not exceptions; they are the norm. Reactive crisis management is not only more expensive than preventing distress, but it also takes a toll on an organisation’s reputation, bottom line, and very essence. The financial costs are merely the tip of the iceberg, and the unseen damage can be catastrophic. Indian boards must internalise this reality—being vigilant and proactive in building resilience is not optional.
Building resilience is not just a buzzword or a hashtag for corporate branding; it is a strategic mandate. The true cost of neglecting it is one that no responsible board can afford.
Dr Rabi N. Mishra is a senior governance and surveillance specialist with BFSI sector.
Srinath Sridharan is a strategic counsel with 25 years experience with leading corporates across diverse sectors including automobiles, e-commerce, advertising and financial services. He understands and ideates on intersection of finance, digital, contextual-finance, consumer, mobility, Urban transformation, and ESG. Actively engaged across growth policy conversations and public policy issues.