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Why Good Risk Governance is essential for firms?

In Uncategorized on October 15, 2016 at 5:56 pm

“ Behind a successful man, there is a great woman” – Famous saying

We can also say that the success of a business is based on good risk governance. Risk and governance are inseparable in current dynamic business environment, and when together adds beauty to social life as well as personal life . In fact, good risk governance acts like a mature woman in providing oversight and guidance on major business decision involved based on their inter-disciplinary experience, and knowledge. Business values are set similar to the foundations of value system in a house.

Failure of governance is one of the major causes of insolvency of companies in the last few decades. Developed countries such as UK are considered to be proficient in developing risk governance than the developing countries. Controlling risk and uncertainty is painful, perhaps combating all of risk and uncertainty with 100% success rate is extremely challenging. Do we understand the reasons why it is so? There are few ideas:

  • Doing nothing and believe in fate;
  • Learn risk governance and implement it ;
  • Implement a well-developed risk governance framework by experience professionals
  • Join a foundation course or read a book on risk governance and then implement it and for mature practice hire experts.

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This is only applicable when we at least understand the value of good risk governance.

Is it possible to run an enterprise whether it is large or small without setting formal risk oversight, processes, risk limits and controls? It is very clear that diffusion of risk governance (governance related to risk related matters) across countries is very divergent due to different understanding  and the way it is implemented. There is no standard format to implement risk governance. Without foundational understanding of the concept, trial/error is not a prudent option at early stages however, affording high cost of enrolling experts pose financial challenge.

Tremendous governance gaps are overlooked from decades. Risk is like belief in death, we always know there is death but whether we will die, may be that’s not acceptable notion. Similarly, none of us are worried because we always think – it will happen to others and not to us. Risk issues that are relevant for the corporate board may not hold true for the committees. There is a significant gap in the understanding, communicating and especially in dealing with the risk. One of the major aims of risk governance is to reduce surprises in the organisation by understanding current risk, anticipating future risks and developing systems with enough resilience so as to demonstrate good risk governance practices. In reality, inclusion/exclusion of a single risk such as cyber security takes considerable time and effort. Further, not upgrading information systems to track, monitor and integrate risk raised  tensions. There are many unanswered questions:

To handle this, we need risk specialists in the board who can make independent internal controls. Board level risk committees are common.

  • Are these committees have enough understanding of risk or situation is like ‘a blind man is leading another blind’ ?

Tone at the top tolerates exceptions, complacency, and unequal treatment which should not ideally be considered.

  • What are the limits of these exceptions?
  • How much corporate frauds can be tolerated? Who is responsible?
  • Does blame game actually works?

There is no state of urgency of implementing good risk governance. It is a lousy, multi-year process with no reward. The benefits of good governance are always visible in bad times. However, in good times, it is considered as a compliance or administrative burden which has reflected in more tick-box approach rather than actual implementation. It is the ethical, behavioural and moral conducts of a woman which makes a woman ‘great’ not simply the beauty. Definition of great woman varies significantly so do the definition of good risk governance but both of them surely protect from a ‘fall’ and motivates for a ‘rise’ in personal life and business environment. Thats what risk governance means to us in practice.

Your comments are welcome.

 

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