What are the key pieces of information that boards need to carry out their oversight duties and assure investors and reg

[tasmih1234]

JD: Boards have traditionally asked two questions: What are our risks and how are we managing them? Since the financial crisis, boards have sought answers to a third question: How do we know? In other words, directors have expressed interest in understanding whether there are effective processes informing management’s responses to the first two questions. From there, questions have started to become more refined. For example:

Have we integrated risk management with the appropriate management processes?
Is our risk culture encouraging the right behaviors?
Are the board and executive management on the same page with respect to risk appetite?
Are our risk management capabilities keeping pace with the changing business environment?
Answers to these questions go a long way toward providing insights that the ERM model is sound. Unfortunately, a lot of boards are simply asking, “What are we doing with respect to ERM?” By itself, that question can be a nonstarter as it often leaves executive management searching for clues as to what the board really wants them to do.

MD: What do you say to a CEO who says, “We do not get hard-dollar iceland mobile numbers list pay back from ERM spending, so we’re not going to put our decision makers through annoying risk assessments? These operating managers know the risks in their businesses and they know what to do about them. That’s what we pay them to do!”

JD: That’s a tough conversation. When you turn the covers back, there may be several reasons why a CEO would take this position. First, ERM may be applied with a focus on compliance or to check off the boxes, as noted in Dr. Walker’s statement, which means that ERM is a mere afterthought or appendage to the processes the CEO really cares about. Second, the risk assessment isn’t adding value the CEO can identify. And third, the board isn’t asking the tough questions.

A comment on the second reason: Traditional risk maps focusing solely on severity of impact and likelihood of occurrence have their flaws. For example, they often focus on known risks, foster group think and pre-empt out-of-box thinking; they require guessing at probabilities and may even lead to a false sense of security with respect to high-impact, low-likelihood risks. A critical flaw, in my view, is they don’t consider speed to impact and response readiness. While these maps may provide a “quick and dirty” view of a company’s risks, they often offer little insight as to what to do next.

So what do you say to the CEO? My line of inquiry would be to ask the CEO if we should focus less on ERM spend and more on enhancing our existing core management processes to make risk considerations more explicit in the strategy setting and business planning processes so we can understand what everyone is doing to manage risk rather than just assume it’s being done. I would also focus on two things: First, the critical enterprise risks that concern the CEO the most rather than the myriad day-to-day risks he believes he is paying people to manage; and second, how to shift the conversation to a business discussion rather than just a risk discussion.

[yadaysrdone]

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