DETERMINING RISK APPETITE

Risk oversight and governance is one of the most crucial areas for boards of directors and C-suite executives. Should companies fail to acknowledge risk, and their relationship with that risk, they could ultimately expose the firm to greater damage when something goes wrong. Equally, if companies fail to take on enough appropriate risk, they make it much more difficult to achieve their goals and the growth required in today’s business climate.

The issue of risk management has become much more pertinent since the onset of the financial crisis. The crisis, along with the high profile bankruptcies and defaults it brought, helped to bring risk and risk management sharply into focus. Arguably, in the period immediately preceding the global financial crisis, warnings were overlooked. Risks were missed, understated or simply ignored. Banks, regulators, supervisors, investors and others were all guilty of taking a flawed approach to risk and risk management policies.

Although the financial crisis had an extremely detrimental effect on the global economy, it did have some positive side effects. Thankfully, as a result of the crisis, attitudes towards risk have begun to shift across a wide variety of sectors, and firms are becoming much more willing to embrace risk management strategies. This shift is largely a result of increased regulatory pressures. Acts such as Dodd-Frank have placed a greater focus on corporate governance and proven a catalyst for change.

Jul-Sep 2014 Issue

Richard Summerfield