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Risk management crucial to effective strategic leadership, says ACCA

Company boards should focus on risk assessment, reporting and control to align with governance policies and objectives, because appropriate risk taking can protect them from potential losses and help them to exploit opportunities, according to research from the Association of Chartered Certified Accountants (ACCA).                         

The report Risk and the strategic role of leadership stated that companies’ boards take a principled approach, discussing risk opportunities connected to strategy in an unstructured way, or a prescriptive approach, formalised and consistent but missing strategic opportunities. The report found that boards find it difficult to address risks within an organisation and connect them to their performance, due to a lack of guidance.

ACCA head of corporate governance and author of the report Jo Iwasaki said that it was important to find out how effective existing practices are in raising awareness and quality. “We can then highlight emerging good practice to promote improvement at every level. This helps us have informed conversations with people in practice, but also those who are in the position to set the framework for good risk management.”

Additionally, the time constraints for meetings to assess detailed risk reports can distract from the overall strategy. “Time pressured boards operating in complex and dynamic environments can find it hard to place risk in a positive context. But with risk comes opportunity, providing boards weigh up the risks and returns associated with different strategic options,” lead researcher of the report and University of Plymouth associate professor of financial services Dr Simon Ashby said.

According to Ashby, corporate governance regulation, such as the UK Corporate Governance Code can have a positive influence on risk management practices at board level, but there can be consequences, particularly the independence of boards and non-executives. Further, the report suggested that having a diverse board would expand skills and experience in risk intelligence.

The research was commissioned in association with academics from the University of Nottingham, Glasgow Caledonian University and the University of Plymouth.

The report can be found here.

 

 

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