Risk management isn't just the responsibility of a dedicated department; it's a critical consideration for every level of an organisation. However, the board of directors plays a pivotal role in setting the tone for effective risk management. In this article, we'll explore what the board needs to think about regarding risk to ensure the organisation's long-term success.

1. Risk Oversight Responsibilities

The board should clearly define its risk oversight responsibilities. This includes defining risk appetite and tolerances, understanding key risk indicators, and ensuring that the executive team is equipped to manage and mitigate risks. Some boards will leave all of these tasks to management while other boards will want to own and define majority of the above.

2. Aligning Risk with Strategy

The board must ensure that the organisation's risk management efforts are aligned with its strategic objectives. The board's role is to support management execute the strategy in a way that balances risk and reward.

3. Risk Governance Structure

The board should establish a robust risk governance structure. This includes defining roles and responsibilities of the board of directors for risk management, creating risk committees where necessary. If Management’s risk governance structure is not setup in a way which allows the flow of communication through the organisation to the board it may need to recommend changes. Without the necessary risk information the board cannot make effective decisions.

4. Regular Risk Reporting

Regular risk reporting is essential. The board needs timely and relevant information about the organisation's risk profile, strategic risks, emerging risks and mitigation strategies. This informs decision making. It is important management communicate the key messages and not supply volumes of data expecting the directors to digest all and draw the necessary conclusions.

5. Encouraging a Risk Aware Culture

The board should foster a risk aware culture within the organisation. This involves encouraging all employees to consider risk in their decision making processes and promoting a proactive approach to risk management. Decisions which come to the board need to explain how they have considered the organisation’s risk appetite.

6. Continuous Education

Directors should engage in continuous education on risk management and industry specific risks. Cyber risk is the latest risk which most boards are highly interested in noting the potential consequences. Staying informed about evolving risks is vital for effective oversight.

7. What is Being Seen in Other Organisations

Most directors are on multiple boards so directors can bring their experience from one organisation to others, where applicable and appropriate. Lessons learnt should be shared across organisations and with other directors.

Conclusion

Effective risk management is a collective effort that starts at the top. The board of directors plays a pivotal role in shaping the organisation's approach to risk including its risk culture. By understanding their responsibilities and actively thinking about risk, boards can lead their organisations to long term sustainability and success.

Closing Thoughts

I encourage you to reflect on your organisation's board and its approach to risk management. How can the board further enhance its oversight and risk-related responsibilities? When the board thinks about risk, the entire organisation benefits.

Now, what would you do differently and what help do you need to get there?