High Performance Boards

CHAPTER 9Risks and Ensuring the Right Board Risk-Philosophy

Risks are a primary board responsibility, and a strong risk philosophy will help boards to be a secure base in this area. The board provides risk backstops for management and also drives the risk appetite of the organisation. In addition, the board makes major choices regarding mergers and acquisitions, culture, and strategy that drive the fundamental risks of the business. Thus, a well-anchored risk philosophy is important, especially as the world becomes more chaotic and the risks ever more challenging.

As the value of goodwill features more prominently on companies’ balance sheets, their responsibilities for managing risk – and especially reputational risk – increase greatly. Not handling this issue properly can have substantial implications, as the case of US theme park chain SeaWorld illustrates.

All boards should keep the following six principles in mind regarding risks, whether these concern people, markets, operations, safety, demand, or other parts of the organisation's activities.

Risks are everywhere! Many business leaders think about risk too narrowly. True business risks go far beyond the technical risks that risk departments or chief risk officers focus on. They can be external, related to the industry, competitors, customers, the environment, and the economy, or internal, stemming from operations, leadership and decision skills, and personal ethics. Risks can be hard and quantifiable or soft and qualitative. ...