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Center for Inclusive Governance
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NACD Advisory Council on Risk Oversight: Board-Management Dialogue on Risk Appet
02/16/2017
“We retain material risks only where consistent with our risk appetite and risk-taking philosophy, that is: (i) they contribute to value creation; (ii) adverse outcomes can be withstood; and (iii) we have the capabilities, expertise, processes and controls to manage them.”
This comment from Prudential PLC chief risk officer Pierre-Olivier Bouée, published in a section of the firm’s 2013 annual report titled “Managing risk to generate competitive advantage,” highlights the potential risk appetite frameworks hold as tools to help enable strategy execution and value creation. Yet the 2016–2017 NACD Public Company Governance Survey (p. 25) indicates that only 44 percent of boards had developed or reviewed their companies’ risk appetite frameworks within the prior 12 months. Of those boards from nonfinancial services companies, only 38 percent had developed or reviewed their risk appetite frameworks within that timeframe.
On February 28, 2017, risk and audit committee chairs from Fortune 500 companies met in Washington, D.C., to discuss the board’s role in the development and oversight of their companies’ risk appetite. The discussion, cohosted by NACD, PwC, and Sidley Austin LLP, highlighted a number of takeaways for directors:
- Align the risk appetite statement with company strategy.
- Use the risk appetite statement to inform critical processes and decisions.
- Continually reevaluate the risk appetite statement.
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