Michael D. Moberly January 13, 2010
It used to take years of dedicated bad management to destroy a company, now it can be done almost overnight, and it’s not just due to the range of hazards, e.g., fraud, financial calamities, terrorism, and/or failures in supply chains, etc., that can threaten a company, it is the speed which such risks can strike and how they can rapidly escalate and cascade throughout an enterprise internally and externally! (Adapted by Michael D. Moberly from remarks of Sir John Bond, Chairman of UK based HSBC)
Risks to business continuity and intangible assets such as intellectual property, brand, reputation, image, goodwill, supply chains, and competitive advantages are rising and asymmetric. In many respects, they represent outgrowths and/or consequences of a hyper-competitive, predatorial, winner-take-all, go fast, go hard, go global business transaction environment functioning in knowledge-based economies.
At least one favorable consequence though, in my view, is more attention is being drawn (normatively speaking) to the precise role and (fiduciary) responsibilities of corporate boards relative to including (addressing) business enterprise (business) risk as routine action items on their agendas, sometimes through ‘risk committees’.
An initial step toward achieving this essential addition, again, in my view, lies in ensuring boards receive professional, objective, and relevant briefings and awareness training absent any ‘agenda’ other than providing strategic and/or tactical insight, perspective, and guidance to benefit the company.
In 2005, Lloyds and The Economist Intelligence Unit collaborated to create a briefing paper (study) titled ‘Taking Risk On Board: How Business Leaders View Risk’. The report (a.) explored the extent to which risk is now a board-level responsibility, (b.) described what boards see as their risk-related priorities, and (c.) identified what they do and don’t do to implement effective risk management strategies in their organizations.
The Lloyds – The Economist Intelligence Unit report concluded that yes, most boards are taking risk more seriously. However, in most instances, a board’s rationale for doing so had been prompted more by the imposition of governance and regulatory mandates and not necessarily by a genuine recognition that their company’s business strategy would benefit from fully integrating (top down) risk management initiatives directly and consistently into board decision-making.
Somewhat more disconcerting however, was the finding that board’s frequently characterized the act of addressing risk in their boardrooms as constituting (a.) constraints, (b.) diversion of resources, and/or (c.) obstacles (impediments) to necessary – normal business risk-taking.
(Perspective and insight for this post was gleaned from – adapted by Mr. Moberly from a 2005 report produced by Lloyds and The Economist Intelligent Unit titled ‘Taking Risk On Board’.)