By Didier Cossin and Yukie Saito
This article examines four critical governance failures in boards: risk management, strategic oversight, executive and non-executive relationships, and integrity. It advocates for a shift in the role of boards from reactive oversight to proactive leadership in managing risks, shaping strategies, selecting and supporting the right CEO, and fostering a culture of integrity.
Introduction
The modern business environment is characterized by unprecedented disruption. Rapid technological advancements, shifting regulatory frameworks, and evolving consumer expectations are reshaping industries and demanding heightened organizational agility. These challenges are compounded by economic volatility and geopolitical tensions, creating a dynamic and unpredictable environment. Further adding to this uncertainty, the anticipated return of Donald Trump to office in 2025 could amplify market volatility, posing additional challenges for organizations.
The role of boards of directors is evolving, requiring them to act as proactive stewards of strategy and risk.
In this context, the role of boards of directors is evolving, requiring them to act as proactive stewards of strategy and risk. By leveraging diverse perspectives and employing innovative, lateral thinking, boards are positioned to address complex risks and capitalize on emerging opportunities. Yet, many boards struggle to adapt, leaving their organizations exposed to missed opportunities and heightened vulnerabilities in an increasingly competitive world.
Through extensive interactions with board members, we estimate that 90-95 per cent of organizational failures related to board governance stem from four key areas: 1) risk identification, assessment, and management; 2) strategy development; 3) relationships between non-executive and executive leaders, particularly in CEO and team selection and support; and 4) integrity. Effective board leadership in these areas is critical, as failures often lead to significant harm. This article will examine these critical areas where boards frequently fall short and illustrate them through the case of Credit Suisse’s collapse.
Four Key Areas Where Boards Underperform
This section outlines four critical areas where boards often underperform. Table 1 offers diagnostic questions to assess specific sources of board failures to identify and address potential vulnerabilities.
1. Failure of risk identification, assessment, and management
The role of boards has shifted significantly in recent years, moving from a focus on oversight to actively shaping the strategic direction of organizations. This evolution requires boards to adopt a forward-looking approach to risk management, integrating it seamlessly with strategy. Effective boards understand that risk is not static; it evolves with market conditions, technological advancements, regulatory developments, and geopolitical shifts. The Russia-Ukraine conflict, for example, underscores the need for incorporating geopolitical risks into decision-making due to its significant impacts on supply chains, energy markets, and global stability. To navigate such complexities, boards must establish proactive approaches that align with the organization’s strategic goals and risk appetite, ensuring timely identification, assessment, and mitigation of risks.
Effective boards understand that risk is not static; it evolves with market conditions, technological advancements, regulatory developments, and geopolitical shifts.
In today’s interconnected environment, risk management has become akin to portfolio management, where risks and opportunities are evaluated for their relevance, proximity, and potential impact. Tools like scenario planning, stress testing, and sensitivity analysis allow boards to explore different futures, assess their organization’s resilience to extreme scenarios, and evaluate the impact of changes in critical factors. A materiality matrix can also be employed to prioritize risks and opportunities based on their significance to stakeholders and their potential impact on the organization’s strategy and goals, focusing efforts on areas that align with long-term value creation.
Boards must recognize that risk management is an ongoing process requiring continuous adaptation. Cybersecurity exemplifies this, with rising threats and regulatory scrutiny, such as the Securities and Exchange Commission’s (SEC) mandate for incident disclosures and oversight practices. By updating cybersecurity frameworks, aligning with regulations, and fostering accountability, boards can address immediate risks while enhancing long-term resilience.
2. Strategic failure
Boards play a critical role in guiding strategic direction, requiring them to integrate risk and opportunity into a cohesive vision. To remain competitive in today’s rapidly evolving environment, boards must combine deep industry expertise with forward-thinking innovation. Anticipating disruptive trends, addressing challenges creatively, and identifying unconventional opportunities are essential for achieving long-term strategic success. This shift is reflected in the rise of science and technology committees, which have grown from 10 per cent of S&P companies in 2019 to 17 per cent in 2024.2 These committees enable boards to align technological advancements with strategic goals in an increasingly tech-driven environment.
The effectiveness of a board’s strategic decisions often depends on its ability to think beyond conventional boundaries and foresee transformative shifts. Fostering diversity and incorporating multidisciplinary perspectives within the boardroom is critical for fuelling such lateral thinking, enhancing the board’s capacity to identify unconventional opportunities.
Boards that embrace this approach are better positioned to turn potential risks into opportunities, driving sustained value creation even in volatile environments. Tools such as scenario analysis and strategic exploration can further support boards in aligning their objectives with future trends, ensuring resilience and relevance amid uncertainty.
3. Non-executive and executive issues
The relationship between the board and executive management is a cornerstone of organizational success, directly influencing decision-making and strategic direction. A board’s ability to select, supervise, and support the right CEO is one of its most critical responsibilities. This process requires identifying not just technical expertise but also leadership qualities such as vision, adaptability, and the capacity to foster a culture aligned with the organization’s goals. Selecting the wrong CEO—or failing to provide adequate support—can result in strategic drift or outright failure.
The chair-CEO dynamic is particularly vital. A strong relationship, built on trust and clearly defined roles, ensures that the CEO receives guidance while remaining accountable. Effective chairs cultivate environments where CEOs feel supported but are held to clear performance standards. Regular, transparent communication between the two ensures alignment on priorities, challenges, and opportunities.
A well-functioning board must ensure clarity between non-executive and executive directors, with non-executives providing independent oversight and executives contributing operational expertise. Boards must balance their supervisory and supportive roles with management. Supervision includes holding management accountable for meeting objectives through structured monitoring of key performance indicators (KPIs), scenario reviews, and targeted interventions when performance deviates. Boards must also create processes for transparent information-sharing and maintain a feedback loop to address challenges promptly.
4. Integrity failure
Integrity is essential to effective governance, forming the foundation for accountability and fostering trust among stakeholders. Boards are responsible for upholding ethical standards, managing conflicts of interest, and ensuring transparency in decision-making processes. Failing to maintain these principles can lead to reputational damage, stakeholder distrust, and, in severe cases, legal or financial crises.
Stakeholder engagement plays a critical role in maintaining integrity. Through stakeholder mapping, boards can identify and prioritize issues with the greatest potential impact and address the concerns of diverse stakeholders. Sustainability considerations are integral to this process. Boards must understand how their decisions affect long-term sustainability outcomes and ensure that these factors are incorporated into governance practices.
Governance structures and processes are equally critical. Boards should establish mechanisms such as specialized committees to oversee ethical governance and sustainability efforts, ensuring systematic and transparent decision-making. Independent directors and regular audits can further reinforce accountability and create safeguards against potential breaches.
Organizations can foster a positive culture by prioritizing ethical behaviour over purely financial performance, recognizing employees who act with integrity even if they miss targets for justifiable reasons. This redefines success beyond numbers and reinforces an anti-fraud culture by integrating rewards for ethical conduct into incentive programs while penalizing unethical actions. Anti-fraud training is essential to sustain this culture, equipping employees to identify risks, recognize warning signs, and report suspicious behaviour.
Case of Credit Suisse – Governance Failures Across Four Key Areas
The collapse of Credit Suisse in 2023 epitomizes governance failure across four critical areas: risk management, strategic alignment, CEO selection and support, and integrity. These interconnected shortcomings led to an erosion of stakeholder trust, financial instability, and the bank’s eventual acquisition by UBS.
Risk Management Failures
Risk management failures were evident in the 2021 Greensill scandal, where Credit Suisse became embroiled in a $10 billion debacle tied to high-risk supply chain
funds.3 Compounding this was the Archegos collapse, which resulted in a $5.5 billion loss due to over-leveraged positions that went unchecked by risk oversight.4 Despite clear warning signs, the bank failed to establish robust processes to address high-risk exposures, highlighting systemic flaws in its approach to identifying and mitigating risks.5
Strategic Misalignment
Strategic changes, such as downsizing the investment bank and focusing on asset management to reduce earnings volatility, were inconsistently executed and failed to inspire market confidence.6 The board’s inability to assess risks associated with these strategic shifts or implement them effectively left the bank vulnerable to external shocks. Furthermore, a persistent dependence on volatile revenue streams from high-risk activities contradicted the goals of building a stable, resilient business model.
CEO Selection and Support
Over a 10-year period, Credit Suisse cycled through four CEOs, signalling the board’s inability to identify and support effective leadership. This instability disrupted strategic continuity, undermined employee morale, and eroded client confidence. The frequent turnover at the executive level led to inconsistent leadership, fragmented initiatives, and a lack of clear vision, all of which further destabilized the organization during critical periods of crisis.
Integrity Failures
The “Suisse Secrets” scandal exposed billions of dollars in accounts tied to illicit activities, raising questions about the bank’s ethical practices and compliance mechanisms. Repeated lapses in internal controls and a culture that prioritized short-term gains over sustainable governance and ethical accountability allowed systemic ethical breaches to persist,7 further deteriorating stakeholder confidence. Combined with high-profile legal and reputational setbacks, including significant fines and regulatory scrutiny, the bank’s integrity failures underscored a profound disconnect between its stated values and operational practices.
These failures in four areas collectively led to an unprecedented crisis of confidence. Social-media-fuelled rumours and a mass exodus of clients resulted in $120 billion in withdrawals during the last quarter of 2022,8 leaving the bank unable to sustain operations. Ultimately, the collapse of Credit Suisse highlights the essential role of cohesive board oversight, strong risk management frameworks, thoughtful strategic execution, and a commitment to ethical integrity in securing an organization’s long-term resilience.
Conclusion
In an era defined by volatility and complexity, the need for robust board governance has never been more critical. Effective boards must address vulnerabilities in risk management, strategic alignment, leadership dynamics, and integrity to build resilient organizations. Failures in one area can trigger cascading effects, amplifying risks and compounding challenges, as demonstrated in the case of Credit Suisse.
To navigate this modern business environment, boards must shift from reactive oversight to proactive, forward-thinking leadership. This means identifying and mitigating emerging risks, aligning strategic decisions with long-term objectives, and prioritizing resilience over short-term gains. Equally crucial is selecting and supporting effective CEOs who can drive stability and vision. A culture of integrity must be deeply embedded, ensuring that ethical practices guide decision-making at all levels. By mastering these principles, organizations can not only weather challenges but also achieve sustainable growth in an unpredictable future.
About the Authors
Professor Didier Cossin is chaired professor of governance at IMD, Switzerland. He is the founder and director of the IMD Global Board Center, the originator of the Four Pillars of Board Effectiveness methodology and author of High Performance Boards: A Practical Guide to Improving and Energizing Your Governance published by Wiley.
Yukie Saito is a Senior Research Writer at the Global Board Center at IMD, specializing in corporate governance, stewardship, and responsible investment. She holds a D.Phil. (Ph.D.) from the University of Oxford and has experience in consulting and with the United Nations.
References
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This article is based on Chapter 8 from Cossin, D. (2024) High Performance Boards, Wiley (2nd edition).
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Spencer Stuart. 2024 U.S. Spencer Stuart Board Index. https://www.spencerstuart.com/research-and-insight/us-board-index
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Financial Times. 28 February 2023. “Credit Suisse breached supervisory law over $10bn Greensill funds”. https://www.ft.com/content/90e1ddae-5ea6-4a88-8f8e-bf10cb3207fc
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NY Times. 29 July 2021. “Credit Suisse Report Details Failings in Archegos Debacle”. https://www.nytimes.com/2021/07/29/business/credit-suisse-archegos.html
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FINMA Report. “Lessons Learned from the CS Crisis”. 19 December 2023. https://www.finma.ch/en/~/media/finma/dokumente/dokumentencenter/myfinma/finma-publikationen/cs-bericht/20231219-finma-bericht-cs.pdf?sc_lang=en&hash=3F13A6D9398F2F55B90347A64E269F44
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Ibid.
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Ibid.
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9 February 2023. “Credit Suisse warns of more losses, drawing regulatory attention”. https://www.reuters.com/business/finance/credit-suisse-logs-worst-annual-loss-since-global-financial-crisis-2023-02-09/
