How do you talk with your board and executive committee about material risk? For many risk leaders, finding effective ways to communicate with their senior leaders about the status of risks represents a major challenge.
Below is a high-level summary of six approaches in the benchmark:
Three common approaches
Although the nine companies in the benchmark detailed different approaches to communicating material risk, a clear majority monitor material risk exposure against appetite:
1. Appetite anchored to top risks; risks outside appetite accepted
2. Appetite anchored to top risks; risks outside appetite discussed
Where do these insights come from?
To help a Risk Leadership Network member who wanted to find more effective ways to communicate with their senior leaders about the status of material, we produced a bespoke benchmark report.
To prepare this benchmark, Communicating the status of material risks: 9 approaches in brief, we conducted a short survey of nine large, listed companies. As part of the survey, they shared the terms and thresholds they use to discuss material risk. We then followed this up by facilitating a series of 1-to-1 bespoke meetings so that the member could dig deep with risk leaders who had implemented an effective approach.
Risk Leadership Network produces bespoke research and reports across a range of risk topics that address specific member needs and priorities.
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3. Appetite anchored to top risks; all risks must be reduced within range
One company that takes this broad approach has a specific escalation plan they use in the event of breaches:
“If a risk falls outside of appetite, it is immediately escalated to the audit and risk committee (ARC), who discuss how to reduce that risk within appetite. However, if a risk is within appetite, but looks like it could move outside in the near future, it can be escalated to the executive leadership team.”
Three alternative approaches
You may want to consider three alternative approaches, used by risk leaders at large listed organisations, in our benchmark:
1. Appetite anchored to objectives
2. Appetite anchored to risk categories
3. Risk status for material risks rather than appetite
A 'low action' rating for this particular organisation means the risk should be resolved within 12 months, a 'medium action' rating is six months, and a 'high action' rating is just three.
While members found value in validating their approach against other risk leaders through this benchmark, there was a lot of discussion in the subsequent 1-to-1 meetings about the implementation of alternative approaches. This enabled the CROs and heads of risk involved in this collaboration to introduce new approaches equipped with lessons learned by other risk leaders.
This is just one of the many collaborations that we've facilitated this month to help our members address their biggest priorities and challenges. Take a look at the other member priorities we're working on now, and find out more about how to get involved with membership here.