Considering unpredictable markets, myriad uncertainties and unprecedented market opportunities, how should the board and executives engage with respect to the organization’s risk appetite? Jim DeLoach offers sage wisdom.
In 2017, the National Association of Corporate Directors (NACD) Advisory Council on Risk Oversight released a publication based on input obtained from a meeting with risk and audit committee chairs from Fortune 500 companies.[1] This publication offers useful insights to directors and senior executives alike that are consistent with the Enterprise Risk Management Framework[2] of the Committee of Sponsoring Organizations of the Treadway Commission (COSO), also released that year, and that boards and executives can use to advance their risk appetite dialogue.
The practical advice offered by the NACD advisory council is framed around three major takeaways:
- Align the risk appetite statement with company strategy.
- Use the risk appetite statement to inform critical processes and decisions.
- Continually re–evaluate the risk appetite statement.
Each of these recommendations is discussed below.
The risk appetite dialogue offers executive management and the board of directors an opportunity to get on the same page regarding the drivers of and parameters around opportunity-seeking behavior. Once they…
