The Financial Reporting Council (FRC) has upped the risk management standards expected of companies and their board members, opening up significant opportunities for risk professionals. Those that can apply risk management thinking in a systematic way to tactics and business strategy will be most successful.

According to the FRC, “ultimate responsibility” for risk management should lie with the board of directors. While risk managers will continue to take care of day-to-day risk responsibilities, the FRC has said that it is up to the board to ensure that the appropriate policies are in place, that board understanding of risk is high, that risks are maintained within tolerable levels, and that risk mitigation is appropriate.

We wholeheartedly support that message. Every so often the corporate world is rocked by a high-profile crisis – or even failure. Whether it is the collapse of Northern Rock, Independent Insurance or Enron, or the Deepwater Horizon disaster at BP, the reasons may at first seem diverse and unique to the individual circumstances of the company.

But research carried out by Cass Business School for Airmic has shown that there are common underlying causes to corporate failure – and all too often the problems emanate from an inadequate grasp of risk at the very top of the company. Indeed, in all the crises just listed (to name but a few), there was a failure by boards to engage with important risks to the same degree that they engaged with reward and opportunity.

Such ‘board risk blindness’ is exactly what the FRC aims to tackle. While many boards do this already, some still fall short and few companies approach risk in quite the structured manner that is now required. 

Jan-Mar 2015 Issue