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Risk Leadership on the Boardroom Agenda


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Helping to Frame the Board’s Risk Conversation - A Profession in Transformation
by AIRMIC John Hurrell and Julia Graham
This session presented on October 04, 2016 during the FERMA European Risk Seminar in Malta, set out some of the issues involved for risk managers making this professional journey and offer practical ideas and suggestions on how risk managers can seize these professional opportunities.
Reinforcing FERMA’s vision of “a world where risk management is embedded in the business model and culture of organisations”, this session will focus on how risk management can be embedded in the business model of the organisation and the importance of risk culture and the profiling of risk culture as part of this process.
The session introduced models, tools and techniques designed for the risk manager developed in partnership with colleagues from other professions and in consultation with those who have a seat at the boardroom table.

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Risk Leadership on the Boardroom Agenda

  1. 1. 2 October 2016 – Malta Helping to Frame the Board’s Risk Conversation A Profession in Transformation John Hurrell and Julia Graham
  2. 2. 2 The Association for those responsible for risk management and / or insurance in their organisations 1200 members in 450 companies generally with turnover in excess of £1bn Extensive research programme into risk related issues
  3. 3. The Way Ahead
  4. 4. Leadership needs to think the unthinkable  Ineffective  Complacent  Striving  Strong culture of trust and respect  Board and management challenge each other  Chairs run meetings well  Feedback  Conduct regular evaluations  Chairs ask for input after each meeting  Risk managers need to be equipped and positioned to support the Board
  5. 5. Member Survey 2016 findings  For the first time the top two risks associated with cyber  Lower levels of confidence for less ‘traditional’ risks  Risk management not fully integrated with wider business units  Risk education not fully integrated within the organisation  Budget constraints  Risk culture not embedded within organisation  Risk management not integrated with strategy  Risk management team better access to the Board The focus on risk has never been greater Airmic member views
  6. 6.  Most risk failures are directly or indirectly a consequence of inappropriate behaviours.  Effective risk governance is achieved through the promotion of effective cultures and behaviours.  Good behaviour and culture are key factors in the successful delivery of the purpose and objectives of an organisation and the creation of value. Culture and Behaviour – Airmic research findings
  7. 7. Why did companies fail?  Lack of board skill and NED control  Board risk blindness  Leadership failures  Poor communications  Organisational and risk complexity  Inappropriate incentives  Risk management ‘Glass Ceiling’ ‘Roads to Ruin’
  8. 8. ‘Roads to Resilience’ 1. Exceptional Risk Radar 2. Flexible and diverse resources and assets 3. Strong relationships and networks 4. Rapid response capability 5. Constant review and adaptation Why do companies succeed?
  9. 9. Exceptional Risk Radar  Everyone is responsible  Constant vigilance  Complacency engineered out  Constant questioning and challenge  Communication critical
  10. 10. Flexible and Diverse Resources and Assets  Actively managed dependencies  Active networks with ability to switch rapidly  Availability of crisis management expertise
  11. 11. Strong Relationships and Networks  Shared common purpose  No blame culture – (“fix the problem”)  Flatter Structures  Engaged leaders
  12. 12. Rapid Response Capability  Quick and appropriate action  Defined processes and teams  Ability to identify appropriate resources quickly  Rehearsing and practising
  13. 13. Constant Review and Adaptation  Investigation through scenario analysis  Learning as a core value  Near misses must be communicated  Active and transparent responses
  14. 14. Risk Responsive Roads to Resilience Roads to Ruin Risk Compliant Respond, Recover, Review Prevent, Protect & Prepare
  15. 15. • It’s all about behaviour and risk culture …. Why do so many companies appear unprepared and unresponsive when the crisis hits?
  16. 16. Risk Governance perceptions – Before the crisis
  17. 17. The reality - After the crisis
  18. 18. Black Swans  Black Swans represent 'unknown unknowns'  As such, how can you plan for them?  But our research shows that you do not need to  It's not Black Swans which are the biggest threat!
  19. 19.  Grey Rhinos represent ‘known unknowns'  You can you plan for them  Highly probable, high impact neglected threats  Warnings and visible evidence but leaders fail to address obvious dangers  Acting in time can make a situation better or keep a crisis from deteriorating  But it’s not Black Swans or Grey Rhinos that are the biggest threat, it’s ............
  20. 20. It's Black Elephants!  It’s the Black Elephant  The Black Elephant was always in the (board) room  But nobody saw it!  Or if they did, they chose to ignore it  But this Black Elephant has been visible to many within organisations  And obvious to all once the crisis had hit!
  21. 21.  Most risk failures are directly or indirectly as a consequence of inappropriate behaviours  Effective risk governance is achieved through the promotion of effective cultures and behaviours Culture is in the spotlight  The UK Corporate Governance Code 2014 sets out explicit responsibilities for risk management and internal controls  Guidance includes specific reference to risk culture and assurance – to ensure that an appropriate culture is embedded throughout the organisation, including embedding risk considerations into reward systems
  22. 22. Drivers of risk culture
  23. 23. Managing risk culture is a cyclical process
  24. 24. When organisations get into trouble, fixing the culture is usually the ‘cure’ … but culture isn’t something you fix Cultural change is what you get after you’ve learned lessons and implemented them Culture is not the culprit – it’s about people Source: Lausanne University 2016
  25. 25. Beware of Board risk blindness and complacency  Research indicates that there can be a gap between perception and reality  Boards report high confidence levels on a range of subjects  Yet rarely discuss some of them in depth ...
  26. 26.  Integrated process across all departments, functions and levels  Integrated with the business model, strategic decision making and planning  Appropriate performance reward structures in place  Monitoring process including annual effectiveness review in place  Educated and informed people across the organisation  Educated and informed stakeholders  Peer to peer team working  Proactive and insightful professionals  Future gazing skills  Educated and informed risk leaders Roadmap to the new risk leadership
  27. 27. Key findings  Digital – a great change driver  Data – the great differentiator  Innovators and futurists – forward looking  Expanding the range of expertise – imperative  Professionalism – key to cementing hard-earned influences imperative  Make friends in the right places – business and governance  Do not seek to become an expert in everything – look internally and externally for the best advice  Become a storyteller – encourage risk thinking  Communicate with knowledge and confidence – this will help to drive influence at all levels  Understand the power of data analytics – and how this can be integrated into existing risk management practices  Develop techniques like horizon scanning and scenario analysis  Use a common language for business and data – avoid jargon The role of the risk manager is transforming Priorities for the next generation of risk managers The Changing Role of the Risk Manager: ACE 2015
  28. 28. Thank you for your attention WWW.FERMA.EU