Russian boards turn to risk – and opportunity

24 Jun 2014

The majority of corporate directors in Russia are identifying risks and opportunities in almost equal measure. But despite consensus on these broader issues, many believe that the boards they sit on don’t understand emerging risks properly and some are concerned about an impending lack of talent forced on their own companies by changing demographics.

These trends emerged in the third annual survey of Russian boards, ‘Megatrends on boards’ agenda’ in which corporate directors were asked to assess the importance of a range of ‘megatrends’ and reflect on how their companies can adapt and prosper in the future. The megatrends reflect key factors in contemporary global development, such as shifts in economic power, accelerating urbanisation, demographical shifts, climate change, resource scarcity and technological breakthroughs.

Although a fairly equal number of directors saw the megatrends bringing either risk or opportunity (or both) their answers also revealed two big insecurities: directors are unsure of how to mitigate the risks or how to grab the opportunities.

Few respondents to the survey described themselves as ‘very comfortable’ with their board’s understanding of risks related to the megatrends. But poor knowledge of risks and opportunities is balanced by a thirst for change. According to the data, more directors are now keenly aware that leaders who do not understand and listen to their stakeholders, and who lack the desire and ability to change will be passed by, as their markets and customers move on without them.

And directors see impacts of some megatrends as threatening to their own internal operating environment. Demographic shifts in Russia mean that it’s not just the market and customers that stand to be affected. Russian business faces huge challenges in the area of demographic shifts, and 55% of directors are aware that this is going to be important. Russia went through a major demographic crisis in the early 1990s when it experienced a ‘baby bust’, or generation gap. Two decades later, the country is facing a potential shortage of graduates, young qualified personnel and broader workforce numbers generally. How directors shape human capital and plan executive succession will be key to business adaptation.

There are other ways in which Russia presents as a unique case when assessed against the megatrends – and sometimes, in a more positive way. In the case of resource scarcity, 52% of directors see resource problems and climate change as ‘weak or insignificant’ in terms of the future of their companies’ operations. This may reflect the importance of resource based companies and the still considerable unexploited potential that the country possesses in areas such as water, agriculture and energy.

Even more positively, the survey data show that boards are changing their behaviour to address those insecurities around risk and opportunity. More (86%) want to devote greater time to technological breakthroughs when considering strategy and 69% want to take a closer look at the likely impacts of shifts in global economic power. Not only will such change open up new markets and potentially demand diversification in products and services, but it will also increase scrutiny – perhaps why sustainability and corporate social responsibility strategies are front of mind for many directors.

Surveyed directors suggest that mitigating risk and grabbing opportunity might come down to having more open discussion at the board level. An alarming 69% of board members think that meetings make effective and efficient use of their time, whereas the significant minority remaining want meetings to be less about administration and more about substance and the discussion of key business issues. Many want increased engagement with a wider range of stakeholders to help keep a sharp look-out and shape a swift response.

Perhaps most importantly, Russian boards are willing to change. Following a board evaluation, 50% of boards sought additional expertise, with a further 50% changing the composition of their board committee. These statistics compare favourably to identical surveys in other jurisdictions, including the US.