Risk managers must get close to the board but remain independent–UK

It is important that risk managers have access to the board, but do not need to sit on the board, according to John Hurrell, Chief Executive Officer of Airmic. “Risk should remain the responsibility of the board—in my personal view, risk managers should be independent and not be conflicted,” he said. “Risk managers need to report at the highest possible level, but they also need to remain independent,” agreed Arnout van der Veer, board member and Chair of the Audit Committee at Airmic, and a chief risk officer. “With the exception of financial services, there is not a place on the board for risk managers. They run the risk of becoming more focused on commercial aspects than on risk,” he said. It is not overly important where a risk manager sits within an organisation or what their title is, as long as risk management is being done well, explained a risk manager at a leading UK Plc who wished to remain anonymous. “It also does not matter exactly who you report to—whether it is the financial director or legal—but risk should be reported to, and considered at, board level,” she said.hideMany modern risk managers aspire to be a chief risk officer (CRO) and report to the chief executive, according to Chris McGloin, VP Risk Management & Insurance at Invensys. But in practice very few organisations, outside of the financial services arena where the position is required by the regulator, have a CRO. “The key point is that you have access to the CEO and other decision makers. For example, if a risk committee is to be effective it will report to the board and have a risk manager on it,” he said. According to Clive Clarke, Group Insurance Manager, Lloyd’s Register Group Services Ltd: “There are lots of different reporting routes that are equally relevant—reporting to finance, company secretary, HR or legal, for example. But the key is to have a short chain of command to the CFO. It is very much the preferred route to report to the board, but in most organisations the CFO owns risk, and that should be your reporting line,” he said. Risk managers should be as close to the board as possible, believes Kathryn Wallin, Senior Manager, Insurance–Europe, Risk Management Department at Marriott Hotels International Ltd. “I would like to see the profession move more toward a position of being involved in setting strategy, so they will need to be at the highest level possible,” said Ms Wallin. “However, some organisations have limited risk management resources, so the most effective way may be to deploy risk management accountability and training as close to the business units as possible, making it a daily part of an employee’s roles and responsibilities and part of the very fibre of an organisation,” added Ms Wallin. Increasingly companies will appoint a head of risk to coordinate risk management. They would need to report into the board or a member of the executive committee, said Paul Hopkin, Technical Director at Airmic. “You need good communication links and access to the board, and must avoid having to operate under a risk ‘glass ceiling’,” said Mr Hopkin. The profile of risk management and the value given to insurance has increased in recent years, in particular following some large corporate losses and the financial crisis, according to Mr Clarke. “The value that risk management brings is now more recognised and senior management are taking much more interest in risk. There is also much more focus on the insurance spend and alternative ways of risk financing, including the use of captives,” said Mr Clarke. The risk management profession has benefited from the global financial crisis because there is now much greater awareness of risk management among all companies, according to Ms Wallin. “Good corporate governance is now more often seen as a good investment,” she said. “It can be difficult to demonstrate the value of risk management. But sometimes a ‘small fire’ now and again can help show the value and give risk a voice,” added Ms Wallin. Most boards do now see the value in risk management, according to Mr McGloin. “Corporate governance in the UK is a strong driver for growing awareness of risk management among the board and non-executive directors,” he said. “When you have enterprise risk management that is properly integrated, effective and efficient, the board will see the real value. Where it is not integrated and runs alongside other functions it is unlikely to be seen as adding value,” said Mr McGloin. Risk is now of real interest to top management, according to Mr Van Der Veer. “While the understanding of enterprise risk management has improved, its application is not always good and that is the main challenge,” he said. Boards realise that risk is important but they do not always buy into a codified approach to risk management standards, said Mr Hopkin. “There is a challenge for risk management professionals to get the enterprise risk management message across. But they are pushing against an open door,” he said. The risk management profession has not been good at articulating its value, explained Mr Hurrell. “It’s easy to hide behind the cloak of compliance, but the key to risk management in terms of board understanding is when it is expressed in terms of strategy, brand, reputation and customers,” he said. Risk managers should look to play the long game and demonstrate value wherever and whenever they can, advised Mr Clarke. “Good, consistent and valued risk reporting and simple presentations can also do much to raise the profile. My advice is to pick the right time and then show your worth,” he said.

Risk managers must get close to the board but remain independent–UK

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