Boards & Risk Management

For a while now, people have been talking about Risk Management and the need for having an effective Risk Management System (RMS) in place within the organization that enables a corporate to mitigate (sometimes even predict / prevent!) various business risks. Risk Management Professionals (RMPs) presently are walking through a jagged path in identification of risk, evaluating risk, managing risks and controlling, reviewing & reporting on critical (risky!) issues that are of concern to the business entity. While all this is being done in organizations quite simply, do the Boards realize that they have a huge role to play in the process of Risk Management?

The Turnbull Report provides guidelines to directors on the review of risks and internal controls. An important point to remember is that although the report refers to internal controls & internal control systems, it does not restrict the meaning of controls to financial controls. The report calls for implementation of a risk management system that encompasses business risks, operational risks, financial risks, strategic risks and procedural risks. It would be informative to note that during a survey conducted by LSE & an international law firm on regulatory risk about who managed regulatory risks in their organization, one-third of the respondents said that Board of Directors, about one-third said Managing Director (MD) & the balance of about a third said Risk Management Dept, Internal Audit Dept etc. Personally, I feel the MD cannot singularly do much without the assistance or guidance of the Board of Directors, Risk Management Committee / Internal Audit / Compliance Dept.

Therefore, Boards need to assume responsibility for not just their activities but also for any inactivity in the nature of corporate governance, risk management & compliance (or the lack of it!).