One of the things I am seen as an expert in is the field of risk. One of the hotly debated topics in risk is the value of a risk appetite statement. There are many reasons their value is debated, however, the real reason is because there are different recipes to produce risk appetite statements to suit the board and management’s personal appetite for risk. And unless board and management take the hardest approach, they either do more harm than good or simply waste their time.
There are essentially three recipes for board and management to choose from:
Easiest: Fluffy and False. This version is saying what they believe stakeholders want to hear. Even if it is not true. The classic is Zero Tolerance around safety. Even though the organisation has a poor safety record. This version will do more harm than good. Being inauthentic will damage culture.
Easy: Convenient and Uninspiring. This version is hiding behind risk speak. It is highlighted with statements like: “A low tolerance for financial risk”. Whatever that means. This version is simply a waste of time and will have no effect on culture.
Hardest: Genuine and Enduring. One that really answers the question: “What is the board’s appetite for ….?” No matter what the “….” is. It is where the board and management articulate the line in the sand that must be crossed and the line in the sand that should not be crossed in the pursuit of the organisation’s vision. This version will influence staff and grow the culture you need to achieve lofty goals.
Helping organisations develop a risk appetite statement is what challenges me the most in the field of risk because not everyone on a board and in management have the same appetite for doing business. And that is why the discussion is essential.
For more on risk appetite, please see my past blogs: Risk Leadership: Matching Employees with Risk Appetite & Operationalising Risk Appetite Statements.