Aug 16, 2013 by Marty Coyne
Understand Strategy But Not Risk-An Oxymoron
McKinsey & Company just completed an excellent survey of directors, Improving Board Governance-McKinsey Global Survey Results that contains some very interesting insights. It notes that directors have a much better understanding of their company business and strategy than a couple of years ago.
Paradoxically, it also states that these same directors “struggle to understand and make time to manage business risks”
Quite frankly, I’m confused and very disappointed in this finding. I can’t understand how directors can claim improved knowledge of their company and its strategy without completely understanding the risks to their company and strategy. I wonder what causes this disconnect.
4 Things Every Board Should Do Immediately
- Incorporate risk into every board discussion
- Understand the planning assumptions and continuously challenge their validity
- Establish clear accountability for important risks both at the management and board level
- Assess semi-annually how your board is doing on both understanding strategy and risk management
Ask 2 Questions
One, very successful approach I’ve seen is to include two questions into every major discussion and decision made in the board room
- What are the risks if we proceed?
- How will we manage these risks?
This survey is a wakeup call for all directors and CEOs. Strategy and risk are so intertwined that it’s impossible to truly understand one without understanding the other.