LONDON, Feb. 24, 2011 /PRNewswire/ -- Adding regulations to avoid any repeat of the global financial crisis will be ineffective if it is not accompanied by a wholesale change in companies' own attitude to risk, according to a new report from Korn/Ferry International, the global leader in executive search, leadership and talent management.
The report, Calculated risk?, offers insight from leaders at some of today's top organizations and provides board-level perspective on how the approach to risk has changed in the wake of the global financial crisis.
The last two years have seen several high-profile examples of excessive risk-taking in the corporate world. As a result, the report indicates that some politicians, regulators and pundits have reacted by calling for more stringent risk regulation, in the corporate environment, while many business leaders perceive this increased oversight to be largely ineffective.
Launched today, the report is based on interviews with chairmen, CEOs and board directors of leading companies including Kingfisher, Legal & General, Balfour Beatty and National Grid in the UK, Deutsche Bank, UBS, Nestle and Lagardere Group in mainland Europe and CB&I, US Steel and Owens Corning in the United States.
Calculated risk? highlights that risking capital or assets in search of financial reward is the definition of business. The report poses a question that is pertinent for global business today: Has our risk appetite become too conservative; has the pendulum swung too far?
Paul Turner, chairman of the industrial team for EMEA at Korn/Ferry International commented: "By talking to the leadership teams at some of the world's largest and most successful companies we have gained valuable insight into best practice into boards' management of risk. It is clear that the last few years have led to a seismic shift in boards' oversight of risk and that looking forward risk will be top of the agenda in all board rooms.
The study reveals that large global businesses see their own attitude to risk as more important than regulation, and are dramatically changing it due to the increasing complexity of risk, heightened public interest in corporate behaviour and the ability of contentious issues to go viral on the Internet, as well as the threat of new regulation. Today risk is "constantly and persistently on the minds and in the conversations of the board", in the words of Peter Brabeck-Letmanthe, Chairman of Nestle.
The report highlights a number of issues that have been prevalent in large global businesses in the recent past and examines what board best practice looks like. The key areas of focus and findings are as follows:
The appropriate level of oversight: A board's risk purview needs to suit their company's scale, strategy and regulatory situation. Will the board simply review and ratify management decisions, or engage at a more ambitious level as challengers and counselors on risk issues. Boards must pinpoint where they want to reside on that spectrum.
Risk requires the full board's attention: Some businesses with complex risk profiles (e.g. financial services) need to work on risk at the committee level for efficiency's sake, but ultimately the whole board must be engaged.
Check the organisational risk culture: Boards need to consider ways to measure, and possibly influence, attitudes towards risk to keep behaviour in line with the board's risk appetite.
The chairman must challenge the status quo: Risk oversight is hampered by stifled opinions, so an open, trusting environment is mandatory. The conversations taking place at board level about risk should be some of the most challenging.
Renewing the board is critical: New directors should be recruited with risk in mind, so that the board, on balance, has industry experience, strong risk instincts, strategic minds, and overarching diversity. Non-executive directors have a critical role to play here. Having experience in a broad range of fields is essential. The report recommends an ongoing and systematic programme of board renewal to bring new thinking that will keep pace with the changing face of risk.
Risk reports need reassessment: Board members are seeking more granular information, and more leading indicators, as well as opportunities for far-ranging discussions with relevant executives.
About The Korn/Ferry Institute
The Korn/Ferry Institute generates forward-thinking research and viewpoints that illuminate how talent advances business strategy. Since its founding in 2008, the institute has published scores of articles, studies and books that explore global best practices in organisational leadership and human capital development.
About Korn/Ferry International
Korn/Ferry International, with a presence throughout the Americas, Asia Pacific, Europe, the Middle East and Africa, is a premier global provider of talent management solutions. Based in Los Angeles, the firm delivers an array of solutions that help clients to attract, deploy, develop and reward their talent. Visit www.kornferry.com for more information on the Korn/Ferry International family of companies, and www.kornferryinstitute.com for thought leadership, intellectual property and research.
SOURCE Korn/Ferry Whitehead Mann; Korn/Ferry International