Diversity of knowledge key to managing risk: Airmic

Boards and their risk management advisers will need more diverse experience and expertise as they grapple with the rapidly changing risk environment, according to Airmic. The UK risk management body made the comments in a recently published guide on risk reporting and the UK Corporate Governance Code (UK Code), published in partnership with the Chartered Institute of Management Accountants (CIMA). The report provides companies with guidance on how they should respond to changes made to the UK Code in 2014, which requires listed companies to disclose their principle risks. It also aims to provide a framework for boards to discuss risk against the backdrop of a changing risk landscape. In the report, CIMA and business leaders recognise the importance of risk management and the challenges boards face in navigating increasingly complex and interconnected risk. John Hurrell, chief executive of Airmic, states in the report that companies require “diverse boards” with the right knowledge and experience, if they are to avoid group think and develop a wide-angle view of risk. “While a board needs the more traditional profile of diversity such as gender, age, ethnicity and experience, it also needs diversity on background, knowledge and ways of thinking,” he writes. Sir Roger Carr, chairman of BAE Systems, adds that diversity is “mission critical” when considering risk, especially given the fast-changing nature of threats. “Views are needed from those old enough to be credible but young enough to have up to date knowledge,” he notes. Speaking to Commercial Risk Europe, Julia Graham, deputy chief executive of Airmic, said that diverse skills and knowledge on boards, and among their advisers, will be critical to managing the new risk landscape. “Boards need to inject diversity of skills and knowledge, and add this to their experience and financial expertise. I would suggest that corporates bring in people from the millennial generation (those born between 1980 and 2000) to add to the wisdom of the board,” said Ms Graham. “For example, in addition to a depth of financial literacy, boards will need a degree of digital literacy in the future, and this is something that most boards are unlikely to have at present,” she said. According to Airmic, the speed of technological change and digitisation raises new “economic and managerial challenges” that can disrupt how organisations compete and create value. “Cyber risk features prominently in this development and while boardroom ownership of cyber risk has increased significantly in UK firms, the majority are still failing to conduct or estimate the financial impact of a cyber attack,” Mr Hurrell notes in the report. According to Ms Graham, changes to the risk landscape and risk governance are likely to have profound impacts on the risk management profession. She believes that it will need to undergo a “transformation” as it responds to the needs of boards. “When the board asks for your help for the first time, you will need to be able to step up and provide that assistance,” she commented. Some risk managers are already acquiring these new skills and knowledge, acknowledged Ms Graham. She noted that many insurance managers are now more interested in the core competencies of risk management. According to Ms Graham, the CIMA/Airmic report signposts board thinking on risk and offers insight into what they will be asking their risk managers. The report suggests that boards will want to see a more “integrated” risk management function, which moves beyond compliance and is integrated with the company business model and strategy, added Ms Graham. They are also likely to want greater collaboration between risk managers and their peers across the business, as well as risk management to be embedded throughout an organisation, she said. In the future, risk managers will also need to be able to offer solutions for intangible risks, which are increasingly relevant but harder to manage and insure, said Ms Graham. Risk managers could assist in this area, for example, by running scenario analysis, she said.

Diversity of knowledge key to managing risk: Airmic

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