Board members weigh in on effective risk management
The financial crisis of the past few years has left most boards dealing with a legacy of uncertain economic conditions and a plethora of new regulations with which to comply. Added to the mix is an expanding, increasingly diverse and vocal stakeholder community. It’s a tough job — directors are expected to do their homework and be close enough to the business to understand its associated risks, while still maintaining enough distance to be effective in their often “contrarian” role as assessors of how well executives are managing that risk. And in the end, how that risk is managed is what will guide an organization towards success or failure.
The media has been full of stories of organizations negatively affected by catastrophic failures — not because they took on too much risk, but because the risks simply weren’t put into perspective and properly managed.
Our discussions with board members confirmed that a robust, systematic risk management process is a necessity, but in order to be truly effective it must be supported by three fundamentals: culture, talent and strategy. If directors can foster an open and positive corporate culture, help attract and retain top-notch talent, and assist in setting a sound corporate strategy, they can help maintain a thriving business, mitigate risks that threaten the organization’s viability and provide true value to all of its stakeholders.