We conducted a research project alongside Henley Business School at the start of last year which found that boards are typically focused on the known risks to a business. If the experiences of recent months teach us anything though, it is that time should also be allocated to identify and plan for the unknowns ? for hostile disruption. We uncovered four kinds of ?extraordinary disruptions? that have the potential to threaten the very existence of a business. These include transformational, reputational and creative disruptions ? and I could name several examples of each. But to my mind, 2016 was unquestionably the year of the hostile disruption, full of?unplanned events. Brexit is a prime example of a hostile disruption. An updated study we published in October revealed that, with the lack of clarity on the post-vote environment, businesses tended to conduct only minimal qualitative scenario planning ahead of polling day. In addition, board directors were emotionally planning for a remain victory. Thus, many were caught off guard although it should be acknowledged that private equity was quicker to act. And we know that Brexit was far from the only political upset of last year. Another type of hostile disruption that has been arising with ever greater regularity is cyber-crime. The?government found that whilst businesses are starting to get better at managing cyber-risks, only a third of the UK?s top 350 companies adequately comprehend the threat of an attack. The lesson for boards is clear: invest more resource into understanding the scenarios, and enhance protection and contingency plans accordingly. Thirdly, the most recent data available suggests that shareholder activism has increased markedly in 2016 and will have greatly surpassed the levels of recent years. Put simply, these investors target situations where they believe they can unlock value. So in response, boards need to start thinking like activists to either discourage an approach in the first place or to address concerns in a proactive and constructive way. And this involves confronting some fundamental strategic questions such as how best to allocate capital, improve operations or carve-out divisions. Leaders experienced in managing hostile disruptions often reflect on the feeling that they have a lack of control and that there is no clear path forward. This is because powerful external stakeholders hold sway over any potential outcome. Our research suggests the most effective leadership style during hostile disruptions is that of ?the determined?. In these situations, events can change very quickly. The determined leader will respond radically and engage in a process of constant evaluation. Emotional resilience is particularly important and in the case of Brexit, an entrepreneurial mind-set to see the opportunity in the midst of a threat. The above are all examples of ?known unknowns?, or situations that one could realistically anticipate a large listed business facing. In a world of uncertainty, companies must build the potential for this type of disruption into their operating model and be prepared, if necessary, to adapt their business accordingly. Time needs to be found in the schedule to properly deal with change ? if done properly, evidence suggests the next crisis might not present a threat, but an opportunity. Malcolm McKenzie is managing director and co-head of Alvarez & Marsal?s European corporate transformation services practiceImage:Shutterstock
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