THE ROLE OF THE BOARD IN RISK MANAGEMENT
Michael Tait, independent chairman and non executive director, discusses the role of the board in Risk Management. The board of directors play a critical role in risk management by providing strategic guidance and oversight to the organisation and have ultimate responsibility for the repercussions of risks becoming a reality. The board is responsible for ensuring that the company is thinking deeply of the risks it faces and that appropriate measures are put in place to mitigate those risks.
One of the primary responsibilities of the board is to ensure the risks that the organisation faces are identified. This requires the board to have a thorough understanding of the industry, the organisation’s operations, and the broader economic and political environment. The board must also be aware of emerging risks, such as those associated with new technologies or changes in regulations, and take steps to assess their impact on the organisation.
Once the risks have been identified, the board must ensure that appropriate measures are in place to mitigate those risks. This may include implementing policies and procedures to manage risk, setting risk tolerance levels, and establishing a risk management framework. The board must also ensure that risk management processes are integrated into the day-to-day operations of the organisation and that all employees are aware of their role in mitigating risk.
The board must also review and monitor the effectiveness of the risk management processes. This includes regular assessments of the risk management framework, monitoring the implementation of risk management policies and procedures, and ensuring that the organisation is aware of any changes in the risk profile.
Another key responsibility of the board is to provide oversight of the organisation’s risk management activities. This includes ensuring that the risk management processes are transparent, effective, and accountable, and that the organisation is able to respond to risks in a timely and effective manner. The board must also ensure that the organisation has the resources it needs to manage risk, including financial, human, and technological resources.
Finally, the board must communicate the importance of risk management to all stakeholders, including shareholders, employees, and customers. This includes regularly updating stakeholders on the organisation’s risk management activities, highlighting the importance of risk management in the overall success of the organisation, and demonstrating the board’s commitment to managing risk effectively.
In conclusion, the board of directors plays a vital role in risk management by providing strategic guidance, oversight, and accountability. By ensuring that the organisation is aware of the risks it faces, that appropriate measures are in place to mitigate those risks, and that the organisation is able to respond effectively, the board helps to ensure the long-term success of the company.
Valuable reading on Risk Management:
The Institute of Risk Management https://www.theirm.org/