Why Some Board of Directors and Senior Management Don’t Value the Role of Risk Managers
Top management knows the importance of the reputation of their organization. Companies believe that a strong positive reputation will attract better people. Customers will also become more loyal, and buy the company’s products and services. For decades, the board of directors relies on senior management to supervise and manage risk.
The truth is that most companies do a poor job in risk management. They often focus on current threats to their reputations, instead of preventing them from happening. This is not risk management, but crisis management. The latter is a reactive approach with the purpose of limiting the damage.
On the other hand, risk management is about assessing potential and existing threats to the reputation of the company. It is a proactive approach that will help the organization quantify and control the threats. And this is where risk managers come. However, there is board of directors and senior managers who don’t want welcome them into the team.
Board’s Role in Risk Management
More often than not, the board of directors tries to handle the risk management for the organization. They think that hiring risk managers is redundant because they already approve a strategy, monitor the execution of the plan, and exercise adequate supervision with regards to risk mitigation. Their duty is to preserve and create value to shareholders.
Executives think that risk managers are too conservative with their methods, and this will cause bottlenecks to the growth of the organization. They will often argue about the risk management strategy, and this can lead to more holdups, which is not good for the growth of the company.
Importance of Risk Managers
Risk can come from both external and internal sources. Internal risks are information breaches or non-compliance, just to name a few. External risks are those that are not within the direct control of management that include exchange rates, political issues, and interest rates, among others. If the board decides to take on the task themselves, the organization might not be ready when they face threats in the future.
That’s why there’s a need to employ risk managers. Their role is to identify risks, come up with strategies, and execute them. Not only that, they need to ensure that everyone cooperates in the strategies, and that includes the board of directors and senior managers.
It is important for executives to realize that the risks can adversely impact the business. That’s why they should be taken seriously by employing the right people for the job. Risk managers must also learn to work with the board of directors and assure them that the strategies they came up with will be beneficial for the growth of the organization.
As you can see, it is important for upper management and the board of directors to work hand in hand with risk managers. They should realize that they are all working for the same team, and their goal is to help the company grow.
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