Corporate boards are facing fresh demands from shareholders, creditors, suppliers and even customers that they have an in-depth understanding of the risks their companies face.Directors must be able to knowledgeably pressure-test executive management. They must be sure that their questions ascertain whether or not the company is prepared to react to quickly evolving situations, such as the UK’s referendum on Brexit.Annually review the company’s risk appetite. Make sure that risk and controls align with corporate strategy. Check any changes to the likelihood and impact of principal threats to the organization. Another is the proposed King IV code from the Institute of Directors in Southern Africa (IoDSA) is open for comment. Among the steps it urges are that boards:Include subject matter experts for certain risks among their ranks Consider risks and opportunities together, and report them Both pieces of guidance move boards in the right direction. Following this advice should lead to a board that is supportive of the enterprise risk management (ERM) team’s efforts and that recruits board members with knowledge of the major threats companies face. For instance, because cyber issues are so important, some boards specifically invite people with IT expertise, who then can act as an operational facilitator for what is such a pervasive and dangerous threat.Does the overall strategic planning process consider and prioritize the uncertainty attached to achieving strategic objectives across the organization? Is risk handled in accordance with the risk appetite and tolerances? What are the areas of risk that have been assessed by management as outside the board’s risk appetite? Have they been reported to the board? Does the approach to risk management take into account risk scenarios and the interaction of multiple risks? How close to the business is the risk team? Is the team able to operate objectively? Does the CEO set and demonstrate consistency in relation to accountability for values and behaviors?
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