High Performance Boards, 2nd Edition

CHAPTER 11Elements of Advanced Risk Techniques for Board Members: From Quants to Cyber

As guardians of key stakeholder interests, board members need to develop a broad working knowledge of advanced risk-assessment techniques. Only then can they be confident that management is choosing the right path.

Although the current narrow focus on compliance is warranted in the wake of recent corporate scandals, it has distracted the business world from the broader purpose of corporate governance: ensuring a balanced risk/return trade-off for all stakeholders. Boards and managers need to return to a wider view of corporate health and sustainability, including in the risk techniques they use.

Corporate governance generally, and boards specifically, have multidimensional responsibilities in steering top management towards the right risk choices. Boards should:

• systematically monitor the risk situation of the company to identify and evaluate multiple sources of risk;
• understand and influence management's risk appetite;
• take a portfolio view of corporate risks;
• be apprised more specifically of the major risks (or risk combinations) that could significantly alter business perspectives;
• evaluate how management has embedded risk management within the corporation, asking organisational questions such as ‘Do we need a chief risk officer?’ and technical questions such as ‘Which tools are being used?’;
• implement joint decision-making procedures for major deals, such as acquisitions and significant ...