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We’re living in an era of unforeseen events that give rise to risks, including geopolitical conflicts and an evolving regulatory environment, with far-reaching economic and social consequences. While a company can’t always anticipate what might be around the corner, strong risk oversight by the board can help the company respond with more rigor and agility. The number and types of risks the board oversees continue to grow, even as their nature changes. Some become more likely as businesses are more interconnected. Some are likely to impact just a certain area of the business. Others could severely impact the entire brand.
The evolution of enterprise risk management (ERM)
ERM has always been about identifying and managing the top risks to the organization. That hasn’t changed. The inputs, the methodology, the output and the overall process have—because they’ve had to. As depicted below, there are several drivers for the evolution of ERM and risk oversight processes.
Key elements underpinning an effective risk management function:
In conclusion...
In a business risk environment that is becoming more complex and interconnected, boards play a crucial role in overseeing risk and keeping shareholders informed.
- To begin, boards can start by looking around the table. Is there diversity of experience, thought, gender and race to bring different perspectives on risk?
- Boards will also want to understand their company’s ERM program and how they can contribute to that program. Additionally, they will want to spend time on their own structure for oversight.
- Finally, boards will not want to forget about the company’s various stakeholders—what information is provided to them about the company’s risk management programs and activities?
By examining and refining its approach to risk oversight, a board can deliver enhanced value to the company and its shareholders.
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