Change of approach needed to facilitate valuable board risk discussions

Board conversations on risk are often failing to add the value they should, and it requires a change in approach from risk managers to help ensure discussions on the subject can truly affect strategic decisions, according to Amanda Mellor, group secretary, head of corporate governance and board member at Marks and Spencer. Ms Mellor advised risk managers at Airmic’s recent ERM Forum to lean on company secretaries, make discussions on risk more accessible and relevant for board members, search for common ground and understand their organisation’s strategy to ensure risk takes it rightful place on the boardroom agenda. Company secretaries work closely with board members and senior managers on governance issues. In addition, they support the chairman to ensure the board functions efficiently and effectively, while at the same time ensuring good information flows within the board and its committees, and between senior management and non-execs. As such, they have good access to boards and senior management, can influence their schedule and have a strong grasp on governance and risk issues. They are therefore well placed to help risk managers get airtime with the board and advise on how best to deliver their message. Ms Mellor’s keynote speech at Airmic’s ERM Forum earlier this month therefore provided a lot of room for thought for readers of Commercial Risk Europe. Not least her assertion that risk and its management is increasingly critical in today’s world, but that boardroom discussions on the matter are falling short. “I think risk is a vital, critical and fascinating consideration. What all of you risk managers do is therefore incredibly important. I doubt there is anybody on a board that wouldn’t say risk is an important matter, yet somehow risk conversation and debate doesn’t seem to be adding the value it should to many businesses,” she said. Ms Mellor said risk management is still seen as an academic subject and somewhat divorced from the business. Boardroom engagement with risk management often results in a half-year discussion on a list of risks that are “invariably so diluted and with charts so complex and summarised to such a high level [that] it is difficult to have a serious conversation, let alone have a debate on risk appetite or tolerance”, she said. “This is still a work in progress,” added Ms Mellor. She stressed that risk is an increasingly critical topic and its management more challenging than ever, as threats become more complex and response times reduce. Risk is undoubtedly a boardroom issue, she continued, and it is vital that risk managers and company secretaries help force the issue. “In this rapidly changing landscape I think risk is a real issue for any boardroom. Risk profiles are changing, with a growing focus on intangible risks. So it is harder to not only evaluate the risks, but they are more complicated and, more importantly, more interconnected. There is no doubt the board sees all of this but for you and me, ensuring we can enable the discussion to be productive and add value is critical right now. Board leadership is essential if organisations are going to truly solve many of the risk issues they face,” said Ms Mellor. For many in the world of risk and governance, the challenge is working out how to link the debate to strategic discussions and raise the subject up the boardroom agenda. Ms Mellor explained that she works closely with Marks and Spencer’s head of internal audit and risk to achieve this and advises all risk managers to get to know their company secretary to help drive change. Building a network that includes the company secretary as a key contact is vital to help risk managers gain influence, understand the business and better grasp board members’ concerns, said Ms Mellor. “You need to remove silos and have an integrated approach. This is the advice I give my team when I want them to have greater impact on the organisation. Being a company secretary means you are often trying to get people to do things they don’t really want to do. So it is very important to build your networks, internally and externally. Your network is vital to you. Make sure you have a clear understanding of the company strategy. Reach out, know who your key stakeholders are to get a real insight into what is on the boardroom’s front of mind. Think about how a board director might be looking at things and get a good understanding of strategy and boardroom concerns,” she said. It is also critical that risk managers ensure that board-level conversations on risk are accessible, said Ms Mellor, who warned that too often risk language is a turnoff. She said risk managers have developed a whole language, jargon, syntax and lexicon that makes risk pretty esoteric and impenetrable to the uninitiated. Risk appetite, tolerance, gross risk, net risk, aggregate and black swans are all terms that can seem very intimidating, she said. “These phrases makes you look slightly disconnected from my world of the board…remove the fear, dilute the jargon and don’t let things get lost in translation,” advised Ms Mellor. She also said the message needs to be delivered in terms that mean something to board members. While the threat of fines and jail can work, this often means expressing things in measurable, mathematical terms. “Think about something that will get them to switch on and bring things to life. This tends to mean something mathematical – margin, bonus targets or profit – anything that can help you point out the impact that you are talking about. Can you cost it? What is the cost of disregarding your control or ignoring your risk? Try and think how you might shape things differently,” Ms Mellor said. This should include framing risk beyond a compliance function, which can often lead to organisations taking the path of least resistance that tends to result in the minimum amount of effort needed to achieve the task set, she added. “The driver of compliance has led to a simplistic view of risk and that has led to us sitting outside the strategic decision-making process, and having an unclear purpose. I think we need to give it a clearer purpose and we need to have a common understanding of what risk is. I have seen debates on risk where by the time it gets into the boardroom, everybody has a slightly different interpretation of what they think risk is. It really helps to start with a common understanding before you then have a meaningful debate,” she said. Failure to position risk correctly makes it difficult to go into a boardroom and shape debate, let alone influence strategy, continued Ms Mellor. “So you need a clear purpose – make sure you have common ground and make it accessible,” she advised. “I think all of these suggestions will drive a better risk culture and help the conversation on risk bleed across the various subject matters it needs to,” she said. “Make sure your shoes are well worn, click your heels and spread your magic. Be Darwinian, evolve, make yourselves successful, adapt your language, break down the silos, work as a team and think about others that can support you. You do have an audience that is willing and wants to do this,” she concluded.

Change of approach needed to facilitate valuable board risk discussions

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