Businesses should consider appointing an executive risk leader to navigate today’s increasingly complex world, or risk leaving their company exposed to the next big crisis, according to Airmic and other leading business organisations. The association’s CEO, John Hurrell, (see photo above) has said this would open up exciting opportunities for risk professionals wanting a more strategic influence in their business.
According to the new report Tomorrow’s Risk Leadership: delivering risk resilience and business performance, boards are failing to navigate today’s increasingly complex risks, potentially resulting in loss of value and eroding resilience in times of crisis. As a result, it challenges businesses and business leaders to consider whether the risk leadership in their organisations is sufficient to meet the demands of today’s fast-paced and interconnected world. The research was published by global business think tank Tomorrow’s Company in collaboration with Airmic and Good Governance Forum members CIMA, IHG, Korn Ferry, PwC and Zurich. The Good Governance Forum is a Tomorrow’s Company initiative formed in March 2010 in response to questions raised about corporate governance effectiveness in the wake of the financial crisis.
Hurrell said: “While companies are usually experts at managing their core risks, all too often the management of risk remains a siloed operation, detached from strategy. What we are recommending in this report, is that companies consider appointing an executive voice of risk to give a corporate-wide view and help boards to cut through the vast amount of risk information and focus on the most important and strategic risks.”
The report has been given a full endorsement from the chair of the Health and Safety Executive, Judith Hackett CBE FREng, who said through her work she stills sees a siloed risk mentality in many companies. Speaking at the launch of the report, she said, “Why is risk leadership not embedded yet? I would like to see it in all organisations.”
Julia Graham, Airmic’s new technical director, has been a driving force for raising the profile of risk management in corporations during her career as a risk professional. As someone that successfully made the transition to risk leader, she understands well both the importance of risk leadership, and also the challenges of achieving it. “Risk management is undoubtedly evolving from the practice of enterprise risk management to the practice of strategic risk management. The board remains the natural place for the ultimate ownership of risk but it needs support in navigating today’s more complex and challenging world. It would be inconceivable for a board not to have expertise represented in areas such as their core business, finance and law, so why not for risk? It is, after all, poorly managed risk that cab bring down a businesses. Risk professionals must rise to these challenges – but as risk leaders we can only lead if others are willing to follow. Taking on a risk leadership role at board level demands the capabilities of the profession coupled with the qualities of leadership and risk professionals must be prepared and ready for the combined challenges that brings.”
According to the report, the risk leader should report directly to the board, and be in a position to influence the strategic direction of the business. This will require independence, assuredness and broad business knowledge. Hackett said the report “sets some high standards” for the risk leader, but, drawing on her own experience leading corporate risk, added that “it’s an exciting and proactive role.”
Katie Moore, research and development manager at Airmic, who worked closely on the project, commented: “Today’s companies need to be able to anticipate change and have the flexibility to adapt and recover from a wide range of events – including unforeseen ones. The risk function alone may not be equipped to do this as it requires an overarching view of the company. But if companies were to make a senior risk appointment to provide a 360-degree view of the company, specifically through the lens of risk, this would be invaluable in today’s environment.”
Hurrell said the report is a must-read for board members and risk professionals alike. “It gives us a good idea of where the risk profession is heading. Over time, we will see more and more risk professionals stepping into these more strategic roles and for those who wish to take their career in that direction, this is an extremely exciting time.” He added that risk professionals must also make sure they have the skills and qualifications to rise to the challenge and to meet these higher expectations. “Risk professionals, whether they are leaders today or are new in their careers, will increasingly need broader business awareness and to be mindful of how risk decisions impact and are impacted by corporate strategy,” he said.
The report follows on from Airmic’s flagship studies Roads to Ruin and Roads to Resilience, which analysed the common reasons for, respectively, corporate failure and corporate success. Both reports drew out the importance of leadership, highlighting that almost all corporate failures and crises can be traced back to a poor risk culture at the very top of the company. Conversely, in the most successful companies, an open and holistic approach to risk was truly embedded in the culture, starting with the CEO and board. Airmic will be publishing a follow-on report looking at the implications of the Tomorrow’s Risk Leadership debate for Airmic members, and asking what today’s risk managers should be doing to become tomorrow’s risk leaders. The report, The Changing World of Risk, will be published at the Airmic conference in June. The formal launch of the report took place at Crown Plaza in the City of London on Tuesday 5 May, with a keynote speech from Judith Hackitt CBE FREng, chair of the UK Health and Safety Executive. She was accompanied by a panel of experts including Hurrell; John Ludlow, Airmic’s junior deputy chair and head of global risk management at IHG; John Scott, chief risk officer at Zurich Global Corporate; Richard Sykes, partner at PwC; and Mark Goyder, CEO and founder of Tomorrow’s Company.