How to respond to market shocks

How to respond to market shocks - a thorough guide for board members forming an essential part of your corporate governance training. Market shocks can severely disrupt business operations and strategic goals, and the most frustrating and scary thing about them is how little control you have over them. They’re often sudden, long-lasting, and big enough to force a complete rethink in how you do business. Even the best-made business plans can be brought down overnight if they don’t include some provisions for dealing with market shocks. That’s why you, as a corporate leader, should know what to do now. Quick recap: what is a market shock? A market shock is an unexpected, significant event that causes a sudden change in your business’s economic or financial environment. Examples include geopolitical developments, financial crises, technological disruptions, and natural disasters. Generally, they are hard to predict but will leave a lasting impact. Are there any recent examples? Of course: The onset of the Great Recession was a massive global market shock, causing significant decreases in consumer wealth and spending and massive unemployment. The COVID-19 pandemic was a sudden and often catastrophic market shock. Entire industries were forced to close for months during strict lockdowns, affecting countless sales channels and causing multiple layoffs. The cost-of-living/supply chain crisis that followed the pandemic was also a market shock. Consumer demand and purchasing ability were high, and choked supply chains drove operating costs up, sinking many companies. The geopolitical crises defining the 2020s have created their own kind of market shock as many businesses try to navigate a global economy laden with strained international relations, sanctions, cut-off markets and boycotts. Each event posed unique challenges for businesses, testing their agility and resilience. Another recap: What is a board’s role in guiding a company? The board of directors plays a crucial role in steering a company. They are responsible for setting strategic directions, overseeing risk management processes, and ensuring that the company has adequate resources to meet its goals, both in the short and long term. This job usually requires careful balance so that all stakeholders feel they’re being heard. In situations like market shocks, the role can be immensely challenging. What short-term steps can boards take to manage market shocks? Ensure you have liquidity The first thing to remember is that during a market shock, you will likely make quick decisions as a board to keep your company afloat. These decisions need cash to implement, so ensure you have enough readily available. Communicate transparently with ALL parties A market shock is a crisis; all crises need regular, thorough and effective communication. As you navigate through a market shock, be sure to give consistent updates to groups like shareholders (who will worry about their return) and employees (who will worry about their jobs). Other groups you may need to be in constant contact with include regulators and local communities if the market shock affects them in any way. Communicate transparently with stakeholders to maintain trust and confidence. Be clear on strategic changes As a director, you need to be able to make quick strategic decisions fuelled by your experience and confidence. This is where corporate governance training comes in handy. As soon as you arrive at any conclusions that require a change in strategy, be clear on why they’ll work and how they’ll be implemented. Stakeholders will want to know these things. What longer-term steps can you take to respond to market shocks? These steps are more for preparation before a market shock, but you could also apply elements of them for the “recovery period” once the worst of a market shock is behind you. Develop and regularly update a risk management framework Every company should have one of these anyway, but there may be room to improve yours with takeaways from other industries or previous market shocks. Above all else, ensure you understand risk and the tangible steps for keeping it in check. Strengthen your governance structures Look at what your company constitution or terms of reference say about your board's ability to make decisions. Is it adequate to handle the fast-paced environment of a market shock? If not, maybe it’s time to rethink. What skill sets do you need on your board to manage market shocks? Boards should encompass a diverse range of skills to manage market shocks, including: Expertise in risk management Financial acumen Crisis management Strategic planning Change management If you don’t have this expertise on your board, consider fresh recruitment or upskilling. In summary: How to respond to market shocks Market shocks test the mettle of a company's leadership, particularly its board of directors. By understanding the nature of market shocks and implementing strategic short-term and long-term measures, boards can safeguard their companies and guide them towards sustainable growth and resilience. The right mix of skills and experience within the boardroom is crucial for navigating these complex challenges effectively.

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Rapidly acquire the skills and knowledge you need to lead.

Diploma in Corporate Governance

Certified Corporate Governance Professional

Certified Company Secretary Professional

Certified ESG Professional

ESG Strategy and Governance

Company Secretary

Overview of Corporate Governance

AI Governance

CSRD Reporting

Go Further With Membership

Join the largest global educator of university credit-rated and qualified directors in corporate governance.

Training Needs Analysis

Join the largest global educator of university credit-rated and qualified directors in corporate governance.

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