Organisations cannot exploit strategic opportunities nor can they protect themselves from potential losses or failures, without a clear steer from the top on appropriate risk taking, says the ACCA
Organisations cannot exploit strategic opportunities nor can they protect themselves from potential losses or failures, without a clear steer from the top on appropriate risk taking, says ACCA (Association of Chartered Certified Accountants).
Company boards are closely connected to effective risk management. Risk assessment, reporting and control help to enhance a board’s governance and control policies, keeping organisations aligned with their objectives.
ACCA’s research highlights the key challenges boards face when performing their roles, but also shines a light on current good practices across both smaller and larger organisations.
Key findings from the report include the following:
- Some organisations are increasingly aware of the strategic benefits of risk management, which helps them to exploit opportunities and exceed their objectives;
- Diversity enables boards to expand their skills and experience in risk; thus making them more effective collectively;
- Boards find it hard to understand and address risk culture within an organisation, due to a lack of guidance and difficulty in connecting culture to organisational performance;
- Time constraints at board meetings and overly detailed risk reports can distract boards from looking at the bigger strategic picture.
Jo Iwasaki, ACCA’s head of corporate governance, says: "It is so important for the research to shed light on existing practices. It helps us find out how effective current measures are in raising the awareness and quality of board engagement in risk management. We can then highlight emerging good practice to promote improvement at every level.
"This helps us have informed conversations with people in practice, but also those who are in the position to set the framework for good risk management."
Lead researcher of the report, Dr Simon Ashby, associate professor of financial services in the Plymouth Business School at the University of Plymouth, says, "Time pressured boards operating in complex and dynamic environments can find it hard to place risk in a positive context. But those who do make connections between their organisation’s strategy and risk management decisions can reap significant rewards. With risk comes opportunity, providing boards weigh up the risks and returns associated with different strategic options. We learned that risk management can enhance organisational value, as well as preserve it.
"In addition to improving professional practice we hope that policy makers will take note of our report. Corporate governance regulation, such as the UK Corporate Governance Code is a major influence on board level risk management practices, we learned that mostly this influence is positive, but there can be unintended consequences. In particular policy makers need to recognise the difference between separation and segregation. Boards, and especially non-executives, need to maintain a degree of independence, but that does not mean they should be kept apart from the people within the organisation. Boards should understand and steer the culture of an organisation so that it promotes an appropriate balance between risk and control."
Dr Cormac Bryce from Nottingham University Business School, says: "The presence of risk diversity on a board, those skills, knowledge, expertise, education and training around risk that ensure a board remains risk intelligent is crucial to effective strategic decision making within the boardroom."
The research was commissioned in association with academics from the University of Nottingham, Glasgow Caledonian University and the University of Plymouth.