'Companies need to understand and manage risk'.
| Author | Tilley, Charles |
| Position | CIMA CEO column |
Are boards slow to get to grips with the true risks to their businesses? Most people would say "yes", following recent corporate failures and disasters that have dominated global headlines. These range from highly publicised corporate scandals to the G4S Olympic security fiasco, which culminated in army personnel having to police the London games.
But in today's fast-paced world, how are organisations supposed to keep a handle on risk? And can risk ever be seen as an opportunity, as opposed to a threat? Risk management often focuses on drawing up detailed risk registers and mitigation plans. This can reduce some of the risks, but evidence shows that it does not appear to have been sufficient to head off some of the recent corporate disasters, such as Deepwater Horizon, as well as the failure of many financial institutions during the credit crisis. There are also other factors at play and these tend to be around issues of behaviour and culture.
So where do organisations begin? The recognition that there are both "hard" risks, such as system failures, and "human" risks needs to be fully understood. Research undertaken by Cass Business School on behalf of Airmic revealed that it is the latter that has the potential to tip a crisis into a full-blown reputational disaster.
So while identifying the so-called "softer" issues, such as inadequate leadership on ethos and culture, poor information flows, or ineffective board leadership that might be awkward to address, it is essential to understand the bigger picture in order for organisations to protect themselves. CIMA is building on this research as a member of Tomorrow's Company Good Governance Forum, which is seeking to develop practical tools in response to the findings of the research.
At a recent CGMA event on reporting risk to the board, an audience poll revealed that 49 per cent didn't believe that their board received the right type of risk information to enable it to make decisions effectively. The same poll showed that boards have become caught up in operational details and are missing the bigger picture, with more than half saying this, whereas only 24 per cent said that their board focuses on the actual "big risk questions" affecting strategy. Indeed, when asked about their board's risk conversation, 26 per cent said its focus was on compliance issues, with 23 per cent saying strategic risks and opportunities. So we still have some way to go.
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