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Stress testing governance

Directors discuss what it takes to emerge stronger from a recession


Many of today’s seasoned corporate directors are well positioned to help steer companies through these tough economic times. Why? Because these are the individuals who, as executives, led their companies through the recessions of the early 1980s and 1990s, and the tech bubble in 2000. Now that they’ve moved from making decisions in the corner office to providing oversight from the boardroom, their collective insights have proven invaluable to surviving and thriving through the so-called Great Recession of 2008/09. But did their best laid governance plans hold up through this period of turmoil? And what lessons can corporate directors offer about strengthening governance going forward?

Working with the Institute of Corporate Directors (ICD), Deloitte delved deeper into these questions at a series of roundtable discussions with corporate directors in Calgary, Toronto and Halifax. The results are detailed in a pair of articles on stress testing governance – originally released in two consecutive issues of the ICD’s bi-monthly publication, Director.

The impact of the recession on governance practices

In our roundtable sessions, directors stressed the importance of understanding how the recession would broadly transform the industry in the future, rather than simply strategizing from within to survive the recession in the short-term. They also warned that post-recession fallout – regulatory re-engineering within the global banking system, skyrocketing deficits created by stimulus spending, and rapid rises in commodity prices and the Canadian dollar – could create a perfect storm of social and political unrest. On the upside, directors are optimistic that, with sound governance and an innovative mindset, Canadian companies can capitalize on our country’s relative strength within the global economy. In the first of two articles, Stress testing governance: The impact of the recession on governance practices, we reveal directors’ views on the transformative nature of this recession, some of the drivers of this transformation, and the implications for boards.

Developing risk intelligent governance

With the dust settling after the peak of the 2008/09 recession, companies are inspecting the cracks in their risk management practices. And directors acknowledge that they’re anxious about the potential backlash from regulators, legislators and investors. Did the board live up to expectations, or is there a perception that the board fell short in discharging its responsibilities? What are the key elements of Risk Intelligent™ governance? And what top 10 lessons did directors learn from the global credit crisis and recession? The second article in this series, Stress testing governance: Developing risk intelligent governance, zeroes in on lessons learned by directors from the recession about risk management, including compensation-related risks, and the importance of building and sustaining trust.