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Boards and Risk: Have we got it right yet?

 

SERIES ARTICLE

Risk Doctor Briefing

By Garry Honey

The Risk Doctor Partnership

United Kingdom

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Regulators have shown a growing interest in the way Boards manage and report risk, and in 2011 the UK Financial Reporting Council identified three areas for improvement:

  1. Responsibility for risk. Boards did not take collective responsibility for risk, with a tendency to treat risk as a specialist topic for experts like the Chief Risk Officer.
  2. Appetite for risk. Boards needed a better way to express risk appetite and tolerance and show that they understood the link between risk exposure and external factors.
  3. Information about risk. Boards were not clear why certain risks were more significant than others, or what made risk exposure rise and fall.

So what has changed in the last four years? Despite encouraging progress in some areas such as risk appetite or risk culture, the underlying problem still seems to exist, arising from differences in perception around the board table about the nature of risk. This in turn affects the way risk is discussed and used by the Board – or not. Four areas need attention:

  • Perception. International standards and leading practitioners agree that risk is future uncertainty, which includes both favourable and unfavourable outcomes. Yet many board-rooms limit their view of risk to unfavourable events which threaten business continuity. As a result, risk management focuses on control systems to avoid business interruption. The risk register aims to provide reassurance that unfavourable outcomes can be avoided, managed or mitigated. The root problem is a fixation on trying to control risk, but future uncertainty cannot be controlled. Boards need to broaden their perception of risk and develop better corporate responses to risk.

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About the Author


pmwj24-jul2014-Honey-AUTHOR IMAGEGarry Honey

Plymouth, UK

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Garry Honey is a Visiting Professor at Plymouth University, specialising in strategic risk. He founded UK-based risk consultancy CHIRON which specialises in intangible or ‘soft’ risks such as reputation. He has clients in all sectors, but is particularly interested in public service brands (schools and hospitals) with complex stakeholder networks where public trust and reputation risk go together. Garry has enjoyed a variety of senior management roles. His early career was spent in Europe marketing consumer goods before moving into consultancy with KPMG. His expertise covers strategy, communication and risk particularly in the Governance, Risk & Compliance (GRC) arena. He can be contacted at [email protected] or via website: http://www.risk-doctor.com/

To see other works previously published in the PM World Journal by Garry Honey, visit his author showcase at http://pmworldlibrary.net/authors/garry-honey/