High Performance Boards, 2nd Edition

CHAPTER 10A Board Member's Practical Guide to Risk Thinking

Risk thinking used to be reserved for the back office, and risk reports used to put board members to sleep. Not anymore. The complexity and impact of risk have increased dramatically, and those companies that have developed special skills, flexibility, and acumen in this area have gained a terrific advantage.

We find that best practices in risk are aligned along the following four dimensions:

• Physical health check – What are we exposed to?
• Mental health check – Are we capturing the right problems?
• Strategic risk check – Are we making the right moves?
• Governance risk check – Are we well-structured for continued awareness?

Boards must focus on all four dimensions, because slippage in any one of them may doom the organisation to failure or under-performance. When times are good, underperformance is often acceptable because everybody is doing well. But not in more difficult conditions, such as the 2020s, when money has become scarce, the generosity of fund providers is waning, and the competition is becoming tougher. Yet fortunes are often made during precisely these periods when only the fittest survive. And adequate risk fitness is crucial in this regard.

The Physical Health Check: Technical Risks

First and foremost, a physical health check is necessary. Every board should be aware of where the organisation hurts. Ideally, it will also know where major clients and suppliers are feeling pain, which individuals are ...