As the board of directors is ultimately responsible for a company’s success or failure, board members should be adequately informed not only about the company’s financial performance but about the full gamut of risks that may impact the company’s prospects and results and influence future strategy.
Performance and risk are actually two sides of the same coin. Although they have traditionally been reported and managed by different organisational functions, there is a growing tendency to link them – for example, by integrating risk indicators into the company’s performance scorecard. Separate risk reporting zooms in specifically on the risk aspect of the business and has the propensity to be compliance driven, which can lead the company into a compliance trap, with the whole risk management turning into a ‘box ticking’ exercise.
Because today’s global economic climate indicates that the business world is more uncertain, risky and volatile than it has been in the past, Vlerick has launched a multi case research project to study corporate practices with respect to reporting performance and risk to the board of directors in European countries in a variety of industries.
The key conclusions of this first phase of the research project are:
What are the implications for the finance professional that must include risk information when reporting to the board? First of all, the management reporting must be aligned with the board’s expectations. This does not necessarily mean that large amounts of extra information need to be produced, but it definitely means increasing the scope and quality of board-level information.
Consider Integrated reporting, it enables the recipient to see the “big picture”. It provides risk information on other types of information on performance, strategy, operations and adds more in-depth understanding of how the business in doing. It is a superior approach towards risk reporting to the board, as it allows breaking through functional silos in the company and putting the information in perspective, thus enabling more effective decision making.
Ideas for Leaders is a free-to-access site. If you enjoy our content and find it valuable, please consider subscribing to our Developing Leaders Quarterly publication, this presents academic, business and consultant perspectives on leadership issues in a beautifully produced, small volume delivered to your desk four times a year.
For the less than the price of a coffee a week you can read over 650 summaries of research that cost universities over $1 billion to produce.
Use our Ideas to:
Speak to us on how else you can leverage this content to benefit your organization. firstname.lastname@example.org