High Performance Boards, 2nd Edition

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.

In 2013, a US documentary called Blackfish was released that criticised SeaWorld's treatment of killer whales. It received much media attention and caused a public outcry against the company. The US Securities and Exchange Commission (SEC) later began investigating fraud charges against SeaWorld for misleading investors about the impact of the documentary on the company. In 2018, the SEC announced that SeaWorld, and its former CEO and Vice President of Communications, would pay more than US$5 million to settle the charges. ‘This case underscores the need for a company to provide investors with timely and accurate ...