Revised UK Corp Gov Code should inform risk management framework

The revised UK Corporate Governance Code and accompanying Guidance on Board Effectiveness should be seen as key drivers for good risk management, according to Mark Butterworth, managing director of risk consultant Condie Risk and former chair of the Institute of Risk Management (IRM). Presenting an IRM webinar, Mr Butterworth highlighted a number of areas under the recently updated UK Corporate Governance Code with implications for risk management. He also noted that non-UK risk managers should study the code because the latest UK revisions are likely to lead to similar changes elsewhere. The UK Corporate Governance Code, formerly known as the Combined Code, underwent a major revamp this year with the new version taking effect from 1 January 2019. The code is now shorter and sharper, however the Financial Reporting Council has taken the opportunity to beef up and elevate the importance of its Guidance on Board Effectiveness (the guide). According to Mr Butterworth, the code and guide should both be read together when building a “sound” risk management platform. “These are comprehensive documents when taken together and are helpful documents for risk managers. Mine have never been off my desk,” he said. The code requires external evaluation of board effectiveness and performance every three years, in addition to annual internal assessment, Mr Butterworth explained. Regular internal and external evaluation of board effectiveness and performance is a key risk management tool, he said, adding that effective governance should be communicated to insurers of directors and officers. Since the UK’s first corporate governance code was published in 1992, it has evolved from being focused on internal controls into an enterprise risk management framework. “The code provides a clear and coherent framework that can be adopted and adapted by each organisation to work best for them. It is flexible and adaptable, and is a benchmark for good risk management across all types of organisation,” said Mr Butterworth. The move away from internal control to enterprise risk management has implications for risk managers. For example, the role of risk control within governance has shifted from accountants to risk managers. The emphasis on reporting risk to the board means that presenting information is now a key skill for risk managers, said Mr Butterworth. The revised code has a number of other implications for risk managers – around risk culture, stakeholder engagement, diversity and remuneration. The 2018 version of the code has a greater emphasis on risk culture, noted Mr Butterworth. He said a successful risk culture should include a clear “tone” set by the board, the timely delivery of risk information and an environment where risk management skills are valued. The revised code requires the board to “assess and monitor” corporate culture. A number of metrics are available to help risk managers achieve this. These include customer complaints, health and safety reports, data breach statistics, as well as staff turnover and absenteeism, said Mr Butterworth. The revised code encourages boards to engage with wider stakeholders and not just focus on investors. Mr Butterworth suggested that engaging with the workforce, a new feature of the revised code, may require wider agreement and communication of the management strategy, while there may be a need for specific training. The code also calls for assessment of board composition, including its skills and diversity, which should be considered as going beyond gender, explained Mr Butterworth. Firms will also be measured on the development of diversity targets, and mentoring and sponsorship of future management. “Diversity targets should produce senior managers and directors with all sorts of backgrounds and from all parts of society,” said Mr Butterworth. “Risk managers should assess the risks of the failure to meet increased diversity expectations,” he added. Risk managers should also build closer working relationships with their organisation’s remuneration committee because the revised code includes more demanding criteria for remuneration policies and practices, advised Mr Butterworth.

Revised UK Corp Gov Code should inform risk management framework

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