I was helping an organisation develop a risk appetite statement recently. The board members had not previously been exposed to such a “device” and as you would expect were a little reticent. While I pride myself on being able to communicate the value of more formal approaches to risk management in a way that it makes sense for people, it remains the single hardest part of the process. Every now and then you hear something said back to you that is better than anything you said before.
On this occasion it was not actually said back to me, it was said by one Board member to another. He said, “This is a real opportunity to communicate to management our appetite for doing business”.
I had explained to the Board at the beginning of the session that risk management and the development of a risk appetite statement was about being successful. I wish I had also said, “It is all about articulating for management your appetite for doing business”.
One last piece to provide you some food for thought. Not everyone on a board has the same appetite for doing business and that is why we need to have the discussion. Too often management is getting mixed messages. They are told one thing in say the Investment Committee meeting and told another in the Audit Committee meeting. A documented appetite for doing business (aka a risk appetite statement) holds management AND board members to account.