Page 46 - The Corporate Report Pack

produces short-term, medium-term and long-term plans. is is where strategic risk identi cation should be considered.
Strategy that does not identify or appreciate a hidden threat can result in business failure, botched mergers and acquisitions, regulatory censure, products that never attract buyers, or rushed decisions to enter a new market. Strategic risk is not just the big-picture nancial, macroeconomic and geopolitical risks, but also includes underappreciated competitive and regulatory threats. A strategic risk management team identi es the key strategic risks facing the organisation, and should enable these risks to be managed and monitored by speci c business leaders. An example of strategic risk is brand equity.
All new products or services should use the strategic risk team to examine the impact on the brand, identify and assess any strategic or regulatory risks and manage those risks going forward, managing them throughout the organisation.
is now becomes part of the structure of the enterprise risk programme, which should be aligned with the organisation’s strategic goals, anticipating the risks the board may not see. is is the essence of successful strategic risk management.
Enterprise risk programmes are essential to strategic risk
Enterprise risk management could be considered as the working interpretation of the strategic risk criteria to the business.
While some organisations employ sophisticated enterprise risk management processes, others have managed these risks informally or on an ad hoc basis. Since management is accountable to the board of directors, they require that strategic risk should be interpreted with regard to the nature and the impact in the enterprise that they are managing. A risk culture in the organisation is central to the enterprise management of risk.
A risk culture can be said to be the willingness of all the participants in an organisation to accept or deal
with risk. is would include the ability to identify, understand, discuss and take action with regard to risk in the organisation. Risk culture is a learned behaviour!
Having a strong risk culture does not necessarily mean taking less risk. A er all market risk is, in a sense, a strategic asset, yet it still remains a risk factor. Risk culture should rather be aligned managing the risk correctly. Organisations with the most e ective risk cultures might, in fact, take a lot of risk, acquiring new businesses, entering new markets, and investing in new innovative products.
Enterprise risk management means every employee or contractor at the organisation should know their business. All employees and contractors should understand how their individual accountabilities could a ect the risks of the organisation and how their functions and responsibilities relate to others within the organisation. is increases risk awareness at an enterprise wide level, which is highly encouraged as holistic risk management.
Checks and balances need to be established so power and authority is devolved ensuring no one individual or a group of individuals can wield excessive power. A prime example of this danger can be learned from the former derivatives broker, Nick Leeson, and the management behaviour. Nick’s actions led to a loss of USD 1.4 billion for his employer, twice the bank’s available trading capital. e management at Barings Bank allowed Leeson to remain chief trader while also being responsible for settling his trades, which are jobs usually done by two di erent people. is made it much simpler for him to hide his losses.
It also shows us that proper reinforcement of the correct risk behaviour needs to be done with formal mechanisms.
e risk manager should provide leadership to manage these risks with the management teams as they evolve. A risk manager will start by identifying the possible operational obstacles and how to mitigate and manage them. ey may also look at opportunities that arise from the risks and should be encouraged to report these upstream. e duties of the risk manager should include:
22 The Corporate Report
How risky is your business?