The Pros And Cons Of Risk Management

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The nature of strategic risks arises from the external environment of the company and requiring the Board of Directors to design a risk management process that would reduce the likelihood of assumed risk occurring and also improve on the company’s ability to manage the risk should they occur. Kaplan and Mikes (2012) stated that a company can voluntarily accepts some risk in order to generate superior returns from its strategy. Chapman (2011) declared that when providing a strategy for a business, it would entail understanding what produces creation of business value and what destroys it. He further added the importance of pursuing opportunities involving a thorough comprehension of the risks to take and the risks to avoid.
IV.1.2. Reputational
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Despite Homeserve’s previous profit driven culture where unethical practices had put their customers at a great disadvantage, they have since then compensated affected customers in respect of the failings identified by the Authority (FCA, 2014). As observed in the company’s 2016 Annual Report, Homeserve have made great effort in rebuilding their customer support by delivering better customer service. As a result, this has led to reduced amount of complaint related claims and improved customer satisfaction. The company was further named, by the institute of Customer service, as the most improved company in the UK for company satisfaction in the UK Service sector with a score increase, since their 2009 report, of 16.2 points (Greaves, 2016). As a new-elected NEDs, we find it positive to see Homeserve rebuilding their reputation and making changes to their customer loyalty practices. Our short-term strategy has been to encourage that the company continue to place this as a principal risk that not only helps improve customers’ experience but also the business …show more content…
A study published in 2012 (McNulty et al., 2012) looked in to whether the degree of risk taking of an organisation can be linked to the formal structure of boards, the tenure of the directors and the behaviours of the board. The study found interesting conclusions that supported that the approach to risk management should be a wider social and subjective process not just the procedural approach. This also supports the FRC Guidance on Risk Management, Internal Control and Related Financial and Business Reporting (previously known as The Turnbull guidance) and reference to the fact that boards should established the tone to exercise its responsibilities. (FRC, 2014b)

There are various challenges to the board in discharging its duties around risk and internal controls in that Non-Executive Directors have in our nature a less detailed awareness of the key risks compared to that of management. A varying level of quality and detail presented to the board can make those challenges greater. The balance must remain to allow the Non Executives to retain independence but we as NEDs should be actively responsible for pressing management to supply the information to allow discharge of duties under the Companies Act (Participation,

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