RELATIONSHIP RISK MANAGEMENT – A KEY BOARD RESPONSIBILITY

We live in an interconnected world. Across all industry sectors, successful businesses rely on a complex network of suppliers and partners to design, develop and manufacture their new products and services. The vertical integration and top-down control model that was once a cornerstone of 20th century industry has given way to the concept of flexible networks with collaborating (and competing) partners. You just have to look at the amazing growth of the smartphone market where the relationships between app developers, hardware manufacturers, mobile phone companies and retailers have built a major global industry from nothing in less than 10 years. But this means that at the top of organisations, boards have had to evolve too, developing ways of working that will safeguard their shareholders’ interests and manage new sources of external risk as well as opportunity.

Three dangerous myths of relationship risk

The reality of today’s interdependence means that some strategic risks will lie at the boundary between organisations. Directors must pay attention to these ‘relationship risks’, which in the past have often not been handled well. Historically, many boards have based their risk mitigation plans on a belief in either their own power and superior expertise, tightly defined legal contracts, or partners they personally trust. But these beliefs can be misplaced and the confidence they create little more than dangerous myth.

Apr-Jun 2015 Issue

Socia