Businesses globally continuously face converging challenges of complex web of global information network, extended supply chains, interconnected worldwide Business relationships and the rapid pace of change in the way we live and work due to technology and demographic shifts. As a result, it has become almost imperative for Board Members and Executives to anticipate changes that affect the vital factor of long-term value creation, that is, Enterprise Risk management.
Conventional Enterprise Risk Management (ERM) methodologies and processes are not robust enough to address the Disruptive Risks. Additionally, Boardroom discussions often rely heavily on Reports about past performance and results, which offer limited insight into the Impact, Probability and Value of the unexpected disruptive Risks. So, the need of the hour is to have Boards guide and assist their Organizations do a better job of identifying, mitigating and preventing disruptive Risks that could have a significant economic, operational, and/or reputational impact. Having said that, this task is no longer an optional undertaking for Directors, rather it is a critical imperative for the Boards of both Private and Public Companies. The nature of Disruptive Risks is ambiguous, complex and difficult to identify, and hence identifying and responding to these Risks calls for building proficiency in Confident and Adaptive Governance.
The important step here is to strengthen and nurture the aspects of Organization culture that help the organization identify and respond to disruptive risks. Risk officers need to start seeing from where traditional ERM oversight ends and oversight of disruptive risks begins. This requires investing in the skills needed to navigate disruptive risks across all levels of Corporate hierarchy. Robust and Future ready ERM processes are not only critical to the overall health of the Organization but, also help create a reference point for assessing early-warning signals indicating atypical or disruptive Risks.
An important question that Risk, Compliance and Audit teams need to be asking is : Are we making the optimum use of Data the Company already has? Emerging Technologies such as Data Analytics and Artificial Intelligence have made more information available to Risk management and other corporate functions in real time. Audit and Risk Committees can ask management about how these Technologies can help enhance the value and insight of board-level Risk Reports.
The Risk Reports should definitely provide a forward-looking view of changing business conditions and potential Risks. In current Business Landscape, Board-level reports in many Companies are decentralized, static and focus primarily on relatively well-known, short-term Risks. To counter this, Boards need to review the format, content and frequency of Risk reports to ensure they provide real time insights on disruptive trends.
These are the key fundamentals of Adaptive Governance for ERM that improve the board’s visibility of disruptive Risks and position the Company to better identify and mitigate unconventional Risks, while providing guidance on turning uncertainty into a Competitive advantage. Sources of disruptive risks might reside internally or externally, but building proficiency and Confidence in Adaptive Governance is surely a competency required in today’s fast-changing Business landscape.
Stay tuned for more posts on leveraging Adaptive Governance for Organizational Growth and Sustainability.
Visit our Appexchange listing for more details on our innovative Product Suite