Risk Governance ‘- A Board Responsibility

King III Chapter 4′s title is “The governance of risk” and consists of 10 Principles.

Clarity is absolute that the board is responsible for risk governance and management are responsible for the management of risk.

Governance Instruments:

The Board must ensure that the following are in place and effective:

• Risk Management Framework,
• Risk Policy,
• Risk Strategy,
• Risk Plan,
• Risk Management Systems and
• Risk Management Processes.

The management system of risk should include a Risk Register where risks and the company’s responses to these risks, are recorded.

Board Responsibilities:

The Board should ensure that Risk Assessments are conducted and that assurance is received regarding the effectiveness of the company’s management of risk.

Importantly the board should decide on a Risk Tolerance level and Risk Appetite limits and monitor (which means that the directors must have this information available) that risks are taken within these levels.

The board must also ensure that the company is able to “anticipate unpredictable risks”.

An Aside: The Black Swan Theory is a metaphor that encapsulates the concept that The event is a surprise (to the observer) and has a major impact. After the fact, the event is rationalized by hindsight. Black Swan Events were characterized by Nassim Nicholas Taleb in his 2007 book (revised and completed in 2010), The Black Swan. Wikipedia

Disclosure:

The company’s Integrated Report is to contain information regarding the company’s management of risk. The board must also ensure that stakeholders are informed with “complete, timely, accurate and accessible risk disclosure”.

Supporting Roles:

The board should make use of a Risk Committee to assist it in exercising its responsibilities.

The board should also delegate to “management”, the management of risk. This includes the appointment of a suitable Chief Risk Officer (CRO) who should be enabled to “interact regularly on strategic matters with the board and/or appropriate board committee”.

Administration:

Other than these key points, Chapter 4 includes administration items regarding director training, schedules of activities and policy management.

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NOTE: The comments in this page are to be read within the context of the candor legal notices which can be found at this web site. The Institute of Directors in Southern Africa’s ownership of the copyright in the publications “King Report on Governance for South Africa 2009” and “King Code of Governance for South Africa 2009” is hereby acknowledged.