Many UK boardrooms too risk-averse, warns report
- Boards conditioned to play safe rather than embrace opportunity
- Efforts to “create certainty” overlook scope to enhance performance
- Narrow outlook partially fuelled by fear that dissent isn’t welcome
Britain’s boardrooms may be impairing the UK’s economic potential by habitually viewing risk only in terms of threats rather than in terms of opportunities, a new report has warned.
A major study carried out for the Association of Certified Chartered Accountants suggests many boards are becoming increasingly conservative and risk-averse in their outlook.
They believe such an approach can help them to “create certainty” in a business environment becoming ever more defined by complexity, churn and technology-driven change.
Risk can create value
Yet their insistence on always choosing what they consider the “safe” option could see them miss out on many significant opportunities, according to the report’s authors.
Researchers from Nottingham, Plymouth and Glasgow Caledonian Universities interviewed dozens of UK board members to investigate board-level risk management.
Dr Cormac Bryce, of Nottingham University Business School, said: “Boards obviously face many challenges in a world that has become so dynamic and interconnected.
“But the temptation to try to create certainty in the face of complexity has to be weighed against the chance to create substantial value for organisations and stakeholders.
“This is an era of innovation and entrepreneurship, and boards that view risk only in terms of threats are liable to lose ground to boards that view it in a more positive light.”
Barriers to opportunity
The study found several factors are widely regarded as barriers to adopting a more strategic risk-management philosophy geared towards innovation and opportunity.
These include time sensitivity, a sense that criticism and dissent aren’t always welcome and a tendency to be “backward-looking” instead of focusing more on the future.
Many boards also see risk management merely as a box that needs to be ticked for regulatory and compliance reasons rather than as a means of enhancing performance.
The biggest risk is no risk
Dr Simon Ashby, of Plymouth Business School, said: “Boards can treat risk management as a business enabler or as just another example of bureaucratic red tape.
“Our research suggests too many lean towards the latter view. This is unfortunate, because taking no risk whatsoever can often present the biggest risk of all.
“Risk may well bring the potential for losses, but it also brings the potential for opportunity – and any board fit for the 21st century has a crucial role to play in that respect.”
Dr Patrick Ring, of Glasgow School for Business and Society, added: “The history of business offers plenty of salutary lessons about the perils of ignoring opportunity.
“It’s up to boards to provide the strategic direction needed to identify and exploit the sort of upside opportunities that are nowadays vital to ensuring long-term sustainability.”
The report, Risk and Performance: Future-Proofing the Board, offers a number of recommendations, including greater board diversity and the incorporation of “critical friends.”
Dr Bryce said: “There’s a lot of good practice out there already. What’s important now is that this is recognised, shared and built upon as widely as possible.”
The full report can be downloaded from the ACCA website.
Dr Cormac Bryce is a member of the Centre for Risk, Banking and Financial Services and the Centre for Research in Behavioural Sciences at Nottingham University Business School. His multi-method research spans from human behaviour in financial organisations to the effect of regulation on organisational behaviour within the aviation and financial services industries. His recent research focus has been grounded in the areas of error-reporting climate and the effects of risk events on the market sentiment of financial services organisations.
Dr Simon Ashby is an Associate Professor of Financial Services at Plymouth Business School.
Dr Patrick Ring is a Senior Lecturer at Glasgow School for Business and Society.
Posted on Wednesday 14th March 2018