How to handle market volatility

How to handle market volatility: a corporate governance training guide to help you through one of the decade’s defining challenges.

Corporate governance provides organisations with reliable contingency practices to cope with the most unforeseen corporate landscapes. That said, the potential industry disruptions in today’s landscape, dominated by post-pandemic changes and geopolitical tensions, require a lot from boards. Their challenge is now to refine policies and decisions according to the risks of continuous rifts between nations and continents. 

This guide will examine how your company can address these unpredictable macro impacts in its governance decisions and the anticipated trends of the decade.

Decisions on the world stage affect how organisations operate and the decision-making processes of their boards. 

Far-reaching events like the conflicts in the Middle East, a slow-recovering world economy, and a global election threatening severe government changes could all steer market trajectories, stakeholder priorities, and industry practices.  

Continuous volatility isn’t unique to the present day; it’s a challenge that resurfaces generation after generation. However, volatility remains a significant issue for boards. It’s a driver of risk, an obstacle to strategy, and a source of market fear. That’s why every company must have a vigilant response plan. 

Such a plan won’t be able to predict everything, but if done correctly, it will significantly mitigate the impact of volatility with a proactive approach to corporate governance.

Your board can prepare senior management for geopolitical and macro affairs via objective-driven and systematic discussions. These usually involve an in-depth framework that guides crucial meeting agendas and helps shape the steps and policies for predicting volatility. 

More specifically, here are some steps you could consider:

It is advantageous to appoint a board member well-versed in geopolitics, particularly foreign policies, as your chief geopolitical strategist. Candidates should have professional experience working in a governmental body. 

Having this kind of expertise is a big ask. Geopolitics is an in-demand skill set, and you may struggle to find the right person. If so, consider education or training to upskill current board members. 

In any case, your chief geopolitical strategist can help fine-tune corporate governance strategies through organised discussions with local economists and other thought leaders, including governmental and public affairs representatives. Chief geopolitical strategists can attend these collaborative meetings to gain exclusive information in positioning corporate governance plans based on predicted volatilities.

Your board’s appointed chief strategist should help interpret and apply the latest geopolitical observations to broader organisational strategies based on their industry expertise and real-world experiences. 

Strategists should go beyond providing facts and figures about geopolitical contentions and concerns. They should ask difficult questions and provide solutions that make sense. 

These include identifying the sensitive areas that affect your organisational goals and stakeholder interests. Making your geopolitical strategy actionable enables the board and senior management to act decisively during a crisis to minimise disruptions while optimising revenue and operations.  

What does that mean? It means you accept that industry and geopolitical volatility are ongoing processes. As such, your board should look for an ongoing, achievable solution with systematic protocols and objectives to guide long-term strategies. 

Rather than brainstorming for event-specific solutions, boards should constantly fine-tune organisational processes by subjecting them to geopolitical stress tests. For example, decision-makers may consider a case study of how cyber security threats and disruptions in vital regional markets could affect corporate governance frameworks and strategies. 

Think of these tests as fire drills, providing the readiness that enables the board and senior management to react promptly during a geopolitical emergency. As such, they should include clear solutions that unite risk management and operational preparedness for guiding geopolitical resilience.

The main goal in this area is to stay broad and keep updated on the most pressing issues faced by industries locally and worldwide. Below are some top geopolitical trends that could affect corporate governance practices and policies in 2024, but your industry may have specific additions.

AI has become a highly contentious topic across industries, thought leaders, and authorities. While AI delivers multiple conveniences to standard operating procedures through automation, these solutions come with ethical considerations and debates. 

Countries may race to develop AI regulation through 2024 to capitalise on the emerging technology while allaying data security and ethical concerns. For example, the competitive pursuit of legitimising emerging technology could pressure US-China trade relations, with the latter having recently systematised AI regulations.

It seems as though half the world is going to the polls this year. Indonesia, India, the US, the UK and the EU will all have held elections by New Year’s Eve. Make no mistake, these are the political milestones that will shape international policy for the rest of the decade. 

Simultaneous changes at the helm of multiple countries would inevitably affect industry standards, trade relations, and societal expectations, ultimately influencing corporate governance. Of particular note is the US elections in November, where results may affect the attitude towards ESG in one of the world’s biggest economies.

Political upheaval persists across countries, from the war in Ukraine to the conflict in Gaza. These issues are sources of continuing tensions – personally, politically and internationally. 

From a broader perspective, these events could ultimately rattle the world economy, threatening the financial outlooks of organisations that try to maintain business in a landscape of sanctions, stand-offs and shifting consumer sentiment. Boards may need to work with senior management to review all this and ensure the most topical flash points don’t severely disrupt business. 

For how to handle market volatility, fine-tune your board’s strategies in navigating the most volatile geopolitical scenarios.