Riding the risk and reward seesaw

  • Culture plays a significant role in bringing the risk appetite to life across the organisation.
  • Boards are still grappling with how to strike the right balance between risk taking and avoidance and to define the sandpit for this test and learn environment. 
  • Monitoring of cultural indicators and being alert to red flags allows for the early detection of subtle changes which may create or increase specific risks.

Risk and reward lightbulbs

Balancing risk and reward is a topic at the front of mind for directors, executives and governance professionals everywhere.

Too much risk and the organisation could suffer financial, regulatory or reputational issues. Not enough and the consequences can be sizable including missed business opportunities or perhaps inadequate or untimely responses to changing market dynamics. With ongoing disruption across multiple industries and global political uncertainty, boards are discussing how to mobilise their organisations to take advantage of innovative business opportunities. At the same time, they fear the fallout from getting it wrong, particularly in this day of instant news where the financial and reputational impact of decisions can be felt instantaneously.

The culture of an organisation will shape how risk frameworks, including the risk appetite, translate into daily work practices. This includes how staff interact with customers and each other and how they apply and use organisational policy, processes and tools. A healthy culture is more than a line of defence against risk events occurring. It provides a competitive advantage in facilitating informed risk taking. The fundamental attributes of a healthy culture — sound leadership, well defined accountabilities, consistent communication, constructive challenge, appropriate rewards and consequences — create an environment in which risks are assessed, planned for, managed and mitigated. The culture of the organisation fosters good governance and risk management, acting as the ‘guard rails’ for decision making and judgment. It reduces the reliance on risk appetite and policy frameworks to anticipate and provide for every set of circumstances confronting employees and the leadership team. It is the culture of the organisation that needs to guide employees to do the right thing.

Five panels were held across the country as part of Governance Institute’s Corporate Governance Forums and insights were shared from current directors, chief executives, chief risk officers, heads of governance and consulting professionals. The themes and highlights from the sessions are outlined below.

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