The Handbook of Board Governance, 3rd Edition

37Risk Oversight for Directors: A Practical Guide

Stephen J. Mallory, ICDD, FCIP, CRM, BA

Risk and Insurance Industry Executive, Experienced Board Member, University Instructor

Summary

This chapter is written for board members who require a concise overview to guide them in understanding and overseeing enterprise risk management (ERM). It provides a high-level and practical outline of why ERM is needed, how it works, and how to implement the risk oversight function as a director. A Gap Study is included by Appendix for directors to test whether best practices are deployed in their organization.

This chapter is structured as follows:

• The Introduction: What is the current state of board risk oversight, and why are directors challenged in implementing it?
• Section 1. The Mechanics of ERM: This section provides an overview of how ERM works, some key concepts directors need to understand, and why it is necessary for an interface between the board and management. It summarizes the five elements of ERM (the focus of this paper) and the four ERM fundamentals necessary for board & executive risk governance.
• Section 2. Board Risk Oversight: This section details eight actions directors should take in setting up risk oversight at the board level.
• Endnotes provide additional and insightful reading.

Introduction

The world has faced numerous crises in the last two decades, including: the financial crises of 2008/2009 and 2020–2022; the COVID-19 pandemic and related supply chain blockages ...