BREAKING THE RISK GLASS CEILING
Despite high profile failures of risk management in recent years, the cost and probability of failure is often underestimated internally and externally, including the time required to fix the problem.
Risk taking remains a fundamental driving force in business: when managed correctly it drives competitiveness and profitability. However, when managed unsuccessfully, the results can be devastating.
The role of senior management in ensuring companies manage their risk successfully is of critical importance. Encouragingly, this is increasingly recognised in official guidelines. The Financial Reporting Council’s risk guidance published in October 2014 stated that the board should take “ultimate responsibility for risk”. And the FRC’s most recent risk guidance, ‘Corporate Culture and the Role of Boards’ published in July, states that senior executives should “get out of the boardroom” to understand how their firms are behaving.
The importance of this is backed up by research we commissioned, published in 2011 entitled ‘Roads to Ruin’, which studied the underlying causes of high-profile corporate crises which left the company reputation in tatters. One trait common to almost all case studies was ‘board risk blindness’ which resulted from a ‘risk glass ceiling’. In other words, risk information did not flow freely up to senior management, usually due to cultural and structural barriers. The result was a failure of the board to properly recognise and engage with risks inherent in the business, including risk to the business model, reputation and their ‘licence to operate’.
Oct-Dec 2016 Issue