Making good decisions is difficult at the best of times. In today’s environment – with the continued impact of Covid and Brexit, exacerbated climate issues, inflation at levels not seen for 40 years, a cost-of-living crisis, war in Europe as well as a range of other worldwide geopolitical threats – boards are finding effective decision making with a high level of confidence trickier than ever.
The third Risk Committee Chairs Forum (RCCF) roundtable, held under the Chatham House Rule, was recently hosted by the Risk Coalition. This RCCF roundtable explored the main challenges of decision making in a volatile and often unfamiliar environment; risk committee chairs shared their practical experiences of what they have been doing to address the challenges.
I have ten ‘takeaways’ from this RCCF discussion and I will cover my learning points over this series of three blogs, starting with the first three takeaways here, and the remainder the next week. So, let’s start with the first three takeaways today…
1. Remember the role of the risk committee
It is important to be mindful of the role of the risk committee. It is there to help the board make better decisions by giving adequate focus to risk-related matters – but the board, of course, retains ultimate accountability for the organisation’s principal risks and for the overall effectiveness of its risk management arrangements[1]. Unlike the audit committee, which has a fairly established and routine remit, the risk committee has much more flexibility to set its own agenda so that its role becomes value adding to the organisation’s specific needs at any point in time. So, the risk committee should take full advantage of this. It should help its board by cutting out the flak and enabling it to focus on the most important matters that its busy agendas may otherwise detract from.
2. Purpose should be your guide
Given the uncertainty involved, the starting point for your risk committee should be to focus on risks to your business objectives and your business plans. In fast-changing environment, though, this may not be enough so it is crucial to have the organisation’s purpose as its ‘guiding star’, underpinning vital decision making. A purpose-led organisation is better placed to navigate an uncertain environment, and purpose will help provide a frame of reference for key questions about what responses are needed and what actions need to be taken, both now and for the future. Purpose largely should be a constant, both in stable times and during volatility, but it needs to be kept under regular watch in case realignment or a rethink is warranted in the event of a seismic change to business circumstances.
3. Don’t expect perfect information
Non-executives seem to have an insatiable appetite for data and information, and data can be viewed as a security blanket. But, in uncertain times, agility and speed of action can be essential, so it is important that non-executives do not slavishly ask the executives for more and more information before being willing to make a decision. (Let’s not forget that the executives have lots else to do – a business to run, for example.) Good decisions can be made without perfect and complete data – after all, non-executives should bring with them good judgement. Good documentation is essential (especially if you may need to justify your actions to regulators after the event), as is regular monitoring (and, when necessary, corrective action or adjustment). Ultimately, paralysis – inaction through lack of decision making – should be avoided as this creates risks in itself, possibly more substantial risks than those resulting from well-thought through decisions on the basis of available information.
In my next blog, in a few days’ time, I’ll cover the next few learning points from the recent RCCF discussion on making decisions in times of uncertainty. Stay tuned!
[1] The Risk Coalition’s guidance, Raising the Bar, defines the risk committee’s role as: “… primarily an advisory committee to the board. Its aim is to facilitate focused and informed board discussions on risk-related matters”.
Hanif Barma is partner at Board Alchemy, which focuses on board effectiveness and improving the performance of risk and internal audit teams. He is a co-founder of the Risk Coalition.
The Risk Coalition’s Risk Committee Chairs Forum (RCCF) has been set up as a professional forum for risk committee chairs to exchange views and share experiences, network and learn from each other and from outside experts. The next RCCF event will be an online roundtable on at 8.30am to 9.30am on Thursday, 8 September 2022, discussing the topic: “How do you know your risk management arrangements are effective?”. You can book here for this event. (This is a Chatham House Rule event for risk and audit committee chairs only.)