In times of economic turbulence and great uncertainty, the corporate governance systems that boards have put in place are really put to the test. Heightened levels of uncertainty in 2025 are placing directors under increasingly greater pressure to prove that their plans for their company’s growth are credible, adaptable and sustainable. Any cracks or deficiencies in what boards have outlined to investors will be scrutinized this year as the reality of global trade wars, supply chain disruptions and recession fears have spooked investors.
Is your board prepared to successfully navigate your company through this current crisis of risk and uncertainty? If you haven’t already, now would be a good time for the board and management to identify any potential risks your company may face in this environment of economic uncertainty.
Hersh Shah, CEO of IRM India Affiliate—the leading global provider of education and training for risk professionals—recently outlined 12 risk factors independent directors should be concerned about this year. He wrote: “Globally, high-profile corporate collapses have reinforced the urgent need for robust checks on executive decision-making and board-level diligence. These failures don’t just undermine investor confidence and destroy value—they expose companies to legal penalties and reputational erosion, and place independent directors at significant personal and professional risk. . .”
Further, he wrote, “the ability to identify early warning signs and latent risk factors can empower independent directors to take corrective action, demand accountability or, when necessary, dissociate from a company before reputational or legal exposure becomes irreversible.”
Shah’s list of 12 risk factors should encourage board members to be proactive in guarding against potential governance lapses that could cost the company money and directors their jobs. The economic uncertainty that was unleashed during the first quarter of 2025 should have alerted every corporate board to potential problems their company could face throughout the rest of the year. These risks are not necessarily new, but it is rare that so many of them might test a company at the same time as could likely happen this year. Issues to consider:
• Come to alignment on risk mitigation for 2025. It’s hard to prepare for risks if there is no agreement on what the primary risks are. Shah’s list of risks includes, “Misaligned Incentives and Excessive Risk-Taking,” “Deficient Risk Culture and Tone at the Top” and “Financial Misreporting and Accounting Irregularities” among others. These risks are not an issue for every company, but coming to an agreement on which risks impact the organization the most is the first step to solving potential problems. Good governance requires that the board and management have a process that allows the organization to discuss and resolve these types of difficult issues. This year should test whether companies have a good process to identify risks or whether they need to improve it.
• Review and upgrade the company’s level of D&O insurance. Even though an organization has a risk management process, planning for mishaps is part of the process. In times of uncertainty and economic volatility, the board often becomes a lightning rod for scrutiny and can be the target of lawsuits if corporate decision-making is questioned. Having sufficient D&O insurance can protect directors and the company from financial losses from lawsuits.
• Communicate plans to address significant risks to shareholders. Shareholders know when a company is under pressure. If they identify risks that the board hasn’t addressed, that is a major problem. Many companies have had to explain to shareholders how they will handle increased tariffs this year. It’s important for the board to show shareholders and the financial markets that it is on top of mitigating risks that could impact the financial success of the company.
