Mismanaging business risk can lead to a host of negative outcomes, from financial shortfalls to cybersecurity breaches and reputational ruin. The complexities of risk management continue to compound as the kinds of business risk continue to expand. In fact, a recent study identified 20 different categories of business risk — making its management and mitigation a sizeable undertaking.
We’re talking with Alexandra Morehouse, a mission-driven collaborator and experienced board member who has extensive expertise in managing risk and compliance at state, federal, and global levels.
Alexandra, you’ve worked for huge companies in highly regulated industries and you are an expert in managing the gamut of business risk. As a ‘risk influencer,’ what is your role?
As a chief marketing officer, I’m thinking always about risk from the perspective of customer relationships. Reputational risk is top of mind — from ensuring the integrity of our CEO’s messages to making sure our hiring practices are equitable. Competitive risk, including monitoring new entrants and developing proactive strategies, is also a key focus. In my role as chief digital officer, a third area of vigilance is cybersecurity, protecting against cyberattacks and data breaches.
How can boards and companies better position themselves for a prosperous future by understanding risk?
It’s a tall order, for sure. Since the Sarbanes-Oxley Act took effect in 2002, mandating new practices in financial record keeping and reporting for corporations, the potential for encountering risk has greatly expanded. Most corporations are trying really hard to not have something really bad happen to them. Over the past two decades, nearly half of the publicly traded companies in the U.S. have vanished because so many lawsuits were filed against them.
The key to avoiding risk is to leave no stone unturned in understanding where your organization is vulnerable — and then eliminating the hazards that can result in adverse consequences.
The crisis in Ukraine, and the corporate exodus from Russia in response, is a prime example of the importance of being prepared for ESG risk. As institutional investors pull away from Russian assets and companies stop services and production in Russia, we see the criticality of having ESG policies in place long before a crisis arises.
How does environmental, social, and governance (ESG) fit into the risk equation?
I currently serve on the boards of several organizations. When I ask the question, ‘How are we doing on ESG,’ I’m sometimes met with a blank look. It’s important to at least begin the conversation. For example, one issue is “greenwashing” — when a company claims it’s environmentally conscious for marketing purposes but hasn’t made any actual efforts in sustainability. Boards need to understand the risk involved in such practices.
If you’re a bad corporate actor, you won’t be able to hire anyone. Employees — especially millennials and Gen Zs — expect more and more to work for an authentic, transparent, and socially responsible company. A commitment to ESG is vital, then, not only to gaining shareholder confidence but also to hiring and retaining top talent.
Who is ultimately responsible for addressing ESG risk? Is that in the board’s domain?
It’s a shared responsibility between the board and senior leadership. Board members need to make sure they have the right governance processes in place to oversee, monitor, and support their organization’s ESG strategy development — and then hold senior leaders accountable for strategy execution.
One of the issues we often discuss is, where does ESG live in board work? Is it with the risk committee? Is it in compensation, where you put incentives in place to motivate the right behaviors? Is it in strategy?
My perspective is, it’s in all areas and needs to be integrated into strategy development and risk management processes. But ESG initiatives must also be owned by the management teams on the ground.
We appreciate your insights, Alexandra.
More about Alexandra: Alexandra Morehouse is a mission-driven collaborator and seasoned board member, with deep experience in governance, risk management, and digital transformation. She currently serves as the chief digital officer and chief marketing officer for Banner Health and is a national thought leader in diversity, equity, and inclusion.