Risk management can go a very long way to making a company more valuable. It follows, therefore, that Boards and Management which know how to do risk management right will themselves become more valuable to the organisation.
But the Board needs to see the value of risk management to begin with, and make a concerted push for its implementation. The organisation’s strategy needs to include it in corporate plans. Additionally, Management may not know enough about risk management to push the RM or ERM agenda, or the firm may not see risk management as a priority because it lacks the resources.
Implementing risk management helps Boards and Management not miss out on chances to make themselves more valuable, and strengthen their professional worth by interlinking this with the company’s. Shareholders are likely to carry on supporting Board members and Management who are perceived to be performing well. Applying risk management as a tool to ensure that the organisation performs as planned is an indication of the Board and Management’s commitment to the job. Their oversight of risk management’s framework, systems, processes and procedures demonstrates their intention of keeping the company sustainable and competitive.
Where risk management is concerned, the job of the Board and Management is extensive. Not only do they have to collaborate on conceptualising the strategy that will drive it, they also have to ensure everything aligns with the strategy. Management operationalises the framework while the Board oversees its implementation. In the process, both Board and Management gain knowledge and experience, collectively as well as individually; this makes them valuable to the company and increases their professional worth. The expertise and competence derived on the job increases institutional knowledge; they are therefore contributing directly to the firm’s competitiveness.
Good managers produce good business outcomes. Good Boards provide the necessary oversight to ensure things are being done in the right way, which increases the trust of shareholders and stakeholders. Good perceptions of an organisation can translate into a positive impact on its share prices, thereby increasing its value. Professional, competent Boards and management also create more resilient businesses that can withstand commercial shocks and disruption. Organisations like these are likely to rebound and recoup more quickly in the face of disaster, and will therefore have an edge over the competition.
Keeping abreast of market developments is one of the ways in which Boards and Management can keep their companies from lagging behind. This also helps the business avoid shocks and unpleasant surprises – and disruption – which may be costly. Companies can be capably steered through difficult times provided their Boards and Management remain focused on what they are doing, and have taken the trouble to put checks and balances in place that can mitigate risk. Effectively helming the firm through business difficulties demonstrates their ability to protect its assets and earnings – and investors’ interests. Add good corporate governance, transparency of dealings and alignment to company objectives, and you’ll have a combination that’s hard to beat.
Ideally, Boards and management should be accountable, and have the foresight to anticipate potential threats to the business. Risk management usually provides the appropriate information to support better decision-making and prudent risk-taking. This leads to better allocation of resources, talent and capital, and could lead to reduced operational costs. Risk management is also a platform with the framework and tools to identify risks as well as opportunity. Not all risk is bad; some have the potential to be lucrative provided the business has the ability to capitalise on it. Risk management helps the organisation excel; in doing so, it is likely to help Board and Management become more valuable too.
