Executive management and the Board are not on the same page with respect to the entity’s risk appetite – Typically, this means there has been insufficient risk appetite dialogue between the Board and management to obtain a high-level view of how much risk the entity is willing to accept and the risks the entity should avoid.Ĥ. Change is inevitable the question is, are the changes helping or hurting?ģ. Lack of understanding of or a failure to monitor the significant assumptions underlying the strategy – Boards should understand the critical factors that make or break the successful execution of the strategy and ensure a process is in place to monitor changes in the business or regulatory environment that could impact those factors. The absence of a robust process leaves both management and the Board hanging on the “How do we know?” question.Ģ. To both of the above questions, how do we know?.Do we have the capabilities in place to manage these risks?.What are our existing significant risks and what emerging risks do we see on the horizon?.These questions often fall into three categories: Lack of a robust process for identifying, prioritizing, sourcing, managing and monitoring the enterprise’s critical risks – As they discharge their risk oversight responsibilities, Directors are asking many questions of management. There are many reasons why the Board’s risk oversight process can fail. Since the financial crisis, many believe that Directors in the financial services industry, for example, must do more to avoid another crisis down the road. Risk oversight is a top-of-mind issue for Boards because of the expectations spawned by the financial crisis and the unanswered questions around what Directors might have – or should have – done to thwart that crisis.
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