Hunting Black Swans or Hiding Hippos?

1. EY Center for
Board Matters
Hunting black swans in 2023:
the board’s role in oversight
of disruptive risks
December 2022

2. EY Center for Board Matters
Page 2
of board members don’t believe their organization has a highly
effective risk management strategy
84%
A risk management wake-up call
EY survey of 500 board members
Global Board Risk Survey | EY – US

3. EY Center for Board Matters
Page 3
Are we thinking about risks incorrectly?
… but gray rhinos are more
concerning and should be equally
managed.
Black swans are
unique and rare ...

4. EY Center for Board Matters
Page 4
Unexpected and sudden disruptions are hitting businesses more
frequently
Natural events
The $210b impact from the Tohoku, Japan,
earthquake halted production for three
automakers.
“How Natural Disaster Affects Supply Chains,” Trinity Logistics, 18
September 2018.
Trade barriers
The $63b impact of global tariffs on the
EU auto industry places a strain on the
decades-old global supply chain.
“Trade Wars Will Disrupt Supply Chains, Slow Global Growth,”
Forbes, 19 July 2018.
Civil unrest
A march at a Chilean copper mine reduced the
global copper capacity by 5%.
“Global supply chains increasingly disrupted by both physical and
ideological battles,” PR Newswire, 22 May 2017.
Terrorism
Border restrictions after the Paris attack led
to $3.5m in cost increases to Belgium
shippers in the first month.
“TerrorAttacks on Global Supply Chains Reach Highest Level
Ever,” SourceToday, 13 October 2017.
Distressed suppliers
Crop disease, drought and government
policy changes caused a cocoa shortage
for food manufacturers.
“What manufacturers can do about the rumored cocoa
shortage,” Food Dive, 12 February 2016.
Epidemics
Outbreaks are expected to increase. The COVID-
19 $400b impact on the global economy was
approximately eight times bigger than SARS.
“Supply-Chain Risks From the Coronavirus Demand Immediate Action,”
Wall Street Journal, 18 February 2020.
Cyber attacks
The WannaCry attack impact was $4b. By 2025, over 50b devices will be
connected to the Internet of Things.
“Insights into Supply Chain Cyberattacks: From Ports to Production,” Spend Matters, 15 January 2019.
War
The war in Ukraine has drastically hampered the recovery of the global
economy. The GDP loss is impacting inflation.

5. EY Center for Board Matters
Page 5
Are you resilient to disruptions or only reacting to them?
How do you anticipate what is on the
horizon and how it impacts your
organization?
How does the organization prepare for
and withstand waves of disruption?
How are you working across
organizational silos to deliver
sustainable, long-term value?
Where do you see opportunities for
improvements?
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Disrupters
Trade wars
Cyber attacks
Natural disasters
Climate change
Pandemics
Economic environment
Technology evolution
Regulatory compliance
Tax policy changes
Employee expectations
Consumer behaviors
Distressed suppliers
Sustainable business practices

6. EY Center for Board Matters
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Subject-matter bias: Assessments may
be influenced by unintentional bias or
circumstantial context.
Groupthink: Groups coalesce around a
consensus view that is based only on a
common experience (often, the last crisis).
Assessment limitations: Low-probability
and high-impact events are difficult to tier in
absolute terms (e.g., low, medium, high or
critical).
Human limitations in assessing risk
Risk assessments require leaders to understand the nature of risks, the effectiveness of controls, and the likelihood
and impact of a risk event. But human limitations pose an additional problem.

7. EY Center for Board Matters
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Challenge the way you think and plan for uncertainty
Premortem
assessments
A method to overcome the
effects of groupthink and
identify potential risks by
assuming a future scenario
where the there are failures,
then imagining what might
have led to those failures
Red teaming
The practice of rigorously
challenging plans, policies,
systems and assumptions
by adopting an adversarial
approach
Designated
troublemaker
The idea that embracing
those who dissent from the
majority opinion can lead to
better decisions and
outcomes
Board members can
probe as to which
alternatives were
considered (even highly
unlikely ones) and follow
up with “what-if”
questions.
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8. EY Center for Board Matters
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Building resiliency means addressing multiple puzzle pieces
A robust approach monitors resiliency across the organization and helps the company respond to a variety of sudden
disruptions while keeping pace with the changing business environment.
Strategic
resilience
Talent
resilience
Information and
technology
resilience
Physical asset
resilience
Value chain
resilience
Financial
resilience

9. EY Center for Board Matters
Page 9
A future-back approach brings resiliency into strategic planning
Future-back strategic planning helps the board consider risk mitigation in a systemic way.
• Challenges long-held assumptions with an outside-in view
• Prioritizes investments based on both value today and relevance for tomorrow
• De-risks the strategic portfolio with “what-if” dialogues
• Improves the organization’s ability to recognize and manage between today and tomorrow
Strategic planning
Historical data + trends
Market size + growth rates
Profit pools
Competitive analysis
Future-back innovation
Future scenarios + disruption
Redefined industries + markets
Platform value creation
Stakeholder ecosystem analysis

10. EY Center for Board Matters
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Considerations for boards
• How has management considered human limitations, such as the
influence of implicit bias and circumstantial context?
• Do scenario analyses consider an appropriate range of extreme and
even improbable scenarios?
• Do scenario analyses incorporate the potential compounding effects
of various risks?
• Are contingency and response plans related to material and high-
impact risks periodically simulated and reviewed with the board?
• What external and internal data is being used to underpin the
assumptions?

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About the EY Center for Board Matters
Effective corporate governance is an important element in building a better
working world. The EY Center for Board Matters supports boards, committees and
directors in their oversight role by providing content, insights and education to help
them address complex boardroom issues. Using our professional competencies,
relationships and proprietary corporate governance database,
we are able to identify trends and emerging governance issues. This allows us to
deliver timely and balanced insights, data-rich content, and practical tools and
analysis for directors, institutional investors and other governance stakeholders.
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All Rights Reserved.
US SCORE no. 17888-221US
2211-4124397
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Updated 11-15-22
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