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Volume 27, Issue 4

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Thursday, 17 July 2014 15:41

Why Active Risk Management Is Essential For Boards of Directors

Historically, corporate Boards of Directors have held the responsibility of risk management oversight, ensuring that risk management processes are clearly defined and appropriately enacted. Their role in managing risk has been to provide guidance and leadership on matters that impact the strategic direction of a company or its public image.  In this traditional view, C-level management is left with the responsibility of actual risk assessment and mitigation, including issue resolution. But in today’s fast-paced and social-media driven world, the speed at which a risk can turn into a widely publicized issue means Board members must now provide both tactical and strategic supervision over risk management as part of their membership.

In the wake of recent financial crises, increased awareness and interest from a broader array of company stakeholders now exists. High-profile and highly reported product quality problems continue to impact multiple industries and both regulators and Boards have been forced to re-evaluate the structure and the role of their risk governance efforts. Whether required by law or not, many corporate Boards, especially (but not solely) those in the financial industry, have taken a more active role in managingcorporate risks. Regardless of regulation or stakeholder demands, an active risk management initiative at the Board level makes good business sense because each risk, whether strategic, operational, political, reputational or other, presents companies with an opportunity to build competitive advantage. The proliferation of risks in the current environment has intensified and forced companies to focus on impacts that must be avoided and opportunities that should be seized. From our point of view, the Board of today should play a direct role in the new risk environment paradigm by creating an active Board-level risk management program. Such an approach will allow organizations to transition from a position defending against risk to a more proactive approach that leverages risks as new opportunities and perhaps even advances organizations to more “blue ocean” possibilities.

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