Risk management has become an essential part of any successful enterprise, with the professionalisation of risk accelerating over the last twenty years. Despite this, the risk function remains somewhat of a mystery to those outside of that world.
We sat down with Richard Anderson, former Chairman of the Institute of Risk Management and founder and Director at AndersonRisk, to further explore this important part of modern-day businesses. Richard was a Partner at PwC, where he led the Strategic Risk Services Group in Europe, Middle East and Africa and then worked in a variety of risk consulting practices before setting up AndersonRisk.
Richard is currently an independent NED at Pay.UK, where he Chairs the Risk Committee and Security Sub-Committee, and a NED at Banking Competition Remedies (BCR). Until recently he was also Chairman of the Cheque & Credit Clearing Company. He has broad experience across many industries as an auditor and a consultant with a strong regulatory and governance background.
MSL: You sit as a non-executive director on several boards, what are the sorts of sectors you are interested in?
Richard Anderson: At the moment I sit on the Boards of companies that are ‘alongside’ financial services, but my background is as a generalist across many industries. This gives me the opportunity to look at things with fresh eyes for organisations that may run the risk of developing some tunnel vision. But the strict answer to your question is that I am interested in many sectors!
MSL: Due to your expertise, many of your roles have a risk component, either as a Risk Committee member or Chair. What is the role of the Risk Chair on a board?
RA: The role of the Risk Chair is three-fold:
It definitely is not about chairing a three-hour discussion on the colour of the risks on a risk map!
MSL: What are the main differences between a standard Board role and one with risk responsibilities?
RA: You have all of the same responsibilities as the rest of the Board, but with the additional focus on a narrower specialist discipline. You have to make an additional effort to be involved in the ongoing strategic conversations at Board level. This is particularly important, as the focus of risk management has shifted from being about operational or enterprise risk management, to a much greater focus on strategic and indeed increasingly on systemic risk management.
MSL: Why do Boards need individuals with expertise in risk?
RA: Whilst risk has always been at the heart of business, it really wasn’t something that was formalized or particularly well-researched until comparatively recently. Because of this, formal risk functions on boards didn’t really materialize until after the corporate governance disasters of the 1990’s, which highlighted and accelerated the need to manage risk. The last twenty years in particular have seen an explosion in growth for the discipline, with more and more CRO’s being hired and Risk Committees being formed. This means that the availability of experienced risk professionals who have a deep understanding of the discipline to sit on boards is comparatively limited.
MSL: What does good risk management look like?
RA: Good risk management is about understanding what an organisation needs to do to meet its objectives, having the right governance over risk and having the right risk appetite that allows people to continue to make decisions. However, the most important part of good risk management is having a good risk culture and having that culture embedded within the organisation.
MSL: How do you balance the needs of the business whilst ensuring the level of risk does not become excessive?
RA: Good risk management does not necessarily involve putting down strict rules and regulations for everything, although this is sometimes required. It is important to remember that risk management is about taking risk, as well avoiding pitfalls and balancing off the needs of an organisation against the risks they will take to fulfil their objectives. You have to be able to provide guidance to the people making decisions such that they understand when they really ought to escalate decision making to the Board level.
MSL: Finally, we are on the cusp of an economic downturn due to the Covid-19 crisis. How does the role of a Risk Chair evolve during these times of crisis?
RA: There is an interesting challenge ahead for organisations. We have had discussions about how risk management can help recovery after a downturn for decades, but there are many unique factors to this downturn. There will be significant changes to supply chains, which we will see being shortened, more in-built resilience of organisations and people will be very carefully watching that risk taking/risk avoiding balance. I think this is all going significantly to shift the emphasis to systemic thinking in risk management.
However the really unique factor of this downturn will be that, for the first time, there will be a wholesale focus on individuals and their personal risk assessments. The push and pull between individuals who have ‘fear-of-going-out’ and those who have ‘fear-of-missing-out’ will dramatically affect how organisations operate moving forward.