“Risk oversight” describes the role of the board of directors in the risk management process. The risk oversight process is the means by which the board determines that the company has in place a robust process for identifying, prioritizing, sourcing, managing and monitoring its critical risks and that that process is improved continuously as the business environment changes. By contrast, “risk management” is what management does, which includes appropriate oversight and monitoring to ensure policies are carried out and processes are executed in accordance with management’s selected performance goals and risk tolerances. Through the risk oversight process, the board:
- obtains an understanding of the risks inherent in the corporate strategy and the risk appetite of management in executing that strategy,
- accesses useful information from internal and external sources about the critical assumptions underlying the strategy,
- is alert for organizational dysfunctional behavior that can lead to excessive risk taking, and
- provides input to executive management regarding critical risk issues on a timely basis.
Risk oversight is a high priority for today’s boards of directors. Because the risk oversight playbook is likely to evolve over several years, emphasis on refining the risk oversight process can be expected to continue into 2010 and beyond. Our Board Perspectives: Risk Oversight series is intended to provide short discussions of topics germane to the risk oversight dialogue.
Current Topic
Issue 1 – Risk Oversight: A Board Imperative. This issue provides suggested questions that boards of directors should consider to frame how they should clarify and discharge their risk oversight responsibilities.
Next Topic
Issue 2 - The Enterprise Risk Assessment Process. The first question the risk oversight process seeks to answer is, “What are our most critical risks?” An effective risk assessment process lays the foundation for management to respond to this question with confidence and instills confidence in the board that management has a substantive basis for answering the question.
Future Topics
Future topics will be influenced by market developments and feedback from board members. Topics currently under consideration are The Risk Appetite Dialogue, Thinking Strategically in Managing Risk, Drawing the Line Between the Board’s Role and Management’s Role, Driving Transparency Through Sourcing Risk Information and The CRO – Finding the Right Person. If you have a topic that you would like to add to the conversation or feedback on the topics under consideration, please share it with us.
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