Australian boards of directors are more likely than their global peers to resign from directorships when they feel the risk management activities of their organisation are not up to scratch, according to new research.
The finding, from Ernst & Young’s (EY) study of independent, non-executive directors, suggests Australian boards have perhaps the biggest commitment to risk management globally, said Craig Jackson, Oceania risk advisory service leader at EY. Additionally, Australia and New Zealand’s directors are keen to share ownership of risk with their CEOs, whereas elsewhere, the preference is for the CEO to exclusively take ownership of risk.
Australian boards of directors have shifted their risk management focus from regulatory compliance to seeking return on the considerable investments made in recent years, the study found.
“Regulation has driven the changes in the development of risk management frameworks following the issues of the last few years and the corporate collapses,” Jackson told Risk Management. “There is now recognition that organisations shouldn’t just be responding to the regulators but doing what’s good for their business.”
Risk management culture is also front of mind for boards locally, Jackson added. “We have a lot of interaction with boards and this is a topic that comes up regularly,” he said. “Boards must oversight rather than implement, but they have a strong recognition that you have to have the culture right. That’s where boards can influence the organisation to get comfort that there is right culture in the organisation. There’s also, in Australia, good awareness that if something goes wrong, often it is attributed back to some cultural issue. They clearly recognise that it’s a key part of risk management.”
The study also found that local board members compare well with their international peers on other risk issues. For example, 89 per cent of local directors believe having a formal risk management framework is key, compared with 69 per cent of directors from other countries.
Directors also see communication and disclosure on risk as the best way of demonstrating to investors that the organisation has a focused and reliable approach to risk management. The annual report was seen as the primary medium for demonstrating risk management skills followed by open communication, with statements of risk processes and strategies following. Regulatory compliance was seen as relatively ineffective as a means of demonstrating risk excellence.
While regulations are seen as a waning influence on risk management in Australia, regulatory risk was seen as the primary area in which risk has increased globally. Business environment risk was the next biggest increase, followed by the difficulty of conducting international business and technology risk.