Introduction
In today's dynamic business landscape, risk management and good governance have become paramount for organisations striving for long-term success and sustainability. An effective board or governing body must proactively identify, assess, and control potential risks to ensure the organisation's resilience and continuity.
Identifying and Assessing Risks
The first step in managing organisational risk is to identify potential threats. This includes conducting a thorough assessment of internal and external factors that could impact the organisation's objectives. Risk matrices or similar tools can be employed to evaluate the likelihood and impact of each risk. By adopting a systematic approach, boards can gain a comprehensive understanding of the risks they face and prioritise their mitigation efforts. “Having a clear vision draws on your goals, purpose and environment to depict the ideal aspirations for your business in the coming years”. (Business.Gov.NZ, 2023)
Key Risks to Consider
Business Continuity: Organisations must be prepared for potential disruptions, including natural disasters such as flooding, climate change, and earthquakes. For instance, in New Zealand, the risk of alpine fault rupture is alarmingly high (a high probability within the next fifty years!). It is crucial for robust business continuity plans to be in place that address these risks and ensure the organisation's ability to recover and continue operations. “And it’s not just the ‘might be’s’, it’s the never even thought about things, like Covid-19”, said Bruce Stormer (Director at Moore Markhams Wellington).
Leadership or Succession: Leadership transitions can pose significant challenges for organisations, especially smaller companies. Recently the TV show "Succession," explored the complexities of succession within a family business (albeit, a multinational corporate). Boards and governing bodies should consider the relevance of this risk and should proactively address leadership and succession planning to ensure a smooth transition and maintain organisational stability.
Financial Risks: Organisations should be aware of financial risks, such as high customer dependency or specific funding risks. Over-reliance on a single customer or funding source can jeopardise the organisation's financial stability. Boards should evaluate the need for diversification and develop strategies to mitigate these risks, such as expanding the customer base or exploring alternative funding options.
Legislative Compliance: Staying abreast of legislative changes is vital for organisations to avoid potential legal and reputational risks. Established processes should be in place to monitor and assess regulatory changes, ensuring the organisation remains compliant. By proactively responding to legislative shifts, organisations can mitigate potential risks and maintain their reputation as responsible corporate citizens.
Effective Risk Monitoring and Control
Once risks have been identified and assessed, boards must establish robust monitoring and control mechanisms. Regular reporting and review processes should be implemented to track the progress of risk mitigation efforts. This enables the board to make informed decisions and take timely actions to address emerging risks. “It’s not just great you’ve got it, and you review it, but does the board take responsibility for it and not just treat it as another ‘tick the box’ exercise”, said Bruce Stormer. By integrating risk management into the organisation's governance framework, boards can ensure that risk management becomes an integral part of the decision-making process.
Conclusion
In today's rapidly evolving business environment, proactive risk management are an essential part of good governance. Boards must take a proactive approach to identify, assess, and control risks that may impact the organisation's objectives. By considering and monitoring risks such as business continuity, leadership or succession, financial risks, and legislative compliance, boards can safeguard the organisation's longevity, reputation, and contribute to its ongoing success.
BRING IN AN ADVISOR TO MAKE SURE NOTHING IS MISSED
Moore Markhams advisors are experts in risk management, succession planning and governance, and can provide as much or as little help as you need.
Safeguarding your business is our top priority. Our experts can implement effective risk management mechanisms tailored to help your organisation thrive. For further assistance with risk management, succession planning and governance advice,
please contact your Moore Markhams Advisor.
References
Business.Gov.NZ. (2023, August 31).
Laying the Groundwork for Good Governance. Retrieved from https://www.business.govt.nz/business-performance/governance/laying-the-groundwork-for-good-governance/