When it comes to risks, Boards have plenty to worry about.
In fact, according to the latest Deloitte CFO Signals" survey, their list of concerns is extensive—and growing. External worries for boards include economic health in North America and Europe, the effects of slow growth on competition, and government regulatory activity. Then, from an internal perspective, there are strong concerns about the loss and/or succession of key managerial and other talent, as well as the execution—more than the quality—of strategy. In fact, more than 60% of boards are worried about poor execution of strategy.
Obviously, it is the CFOs' responsibility to keep boards up-to-date on how their companies are managing these risks—and to a certain extent, to address their concerns. But new research from Corporate Board Member and Deloitte LLP, titled Bridging the Gap, reveals differences between CFOs' and directors' perceptions about how much time CFOs actually spend on risk management. In this CFO Blog, we examine that research and discuss ways CFOs can better communicate concerns about risk and, in the process, possibly raise their own profiles.
Bridging the gap study
If you ask CFOs, they've raised the profile of risk substantially within their companies. In the same CFO Signals survey, CFOs say that over the past five years, their companies have taken extensive steps to improve risk awareness, clarify responsibility, and plan for risk events.
Yet, while risk awareness may be up, the Bridging the Gap study—which surveyed nearly 200 board members and CFOs at companies with annual revenue of $500 million or more—found that directors, more often than not, thought CFOs were spending less time on risk management than they really were.
Closing the gaps
Whatever the reason, there are certain steps that CFOs, as well as Boards, can take to address such perceived gaps and challenges. For example:
- Avoid information overload. From the board's perspective, information overload involving risk oversight is seen as a serious challenge. What boards need to know are the critical risks—the top 10 risks—not stacks of reports with too much detail. But getting to that can be a challenge.
- Make clear the migration of risks from high priority to lower priority. To help boards prioritise, CFOs should make clear on a risk dashboard which risks have moved from being a high priority to a lower priority— and vice versa—as new risks emerge.
- Link risk to business strategy. Reviewing risks and mitigation plans in light of an organisation's strategy—and incorporating those views into board discussions— is also important. Thinking about risk without including the business strategy is thinking about it too narrowly.
- Ensure you have risk-savvy board members. Having at least one board member who really understands the complexities of risk management is beneficial to the make-up of a board. While dashboards and other information filters are important, they do not take the place of a knowledgeable board.
Advantage CFOs
CFOs have to establish effective relationships with their boards to both fulfil their fiduciary responsibilities and advance their agendas. Failure to master these relationships can often drain the energy of a CFO and sometimes stymie a career. Little wonder, that according to the Q1 Deloitte CFO Signals report, improving relationships is a top priority for surveyed CFOs, with about 45% indicating a focus on improving their relationship with internal stakeholders, including their board.
As CFOs take on stronger strategist and catalyst roles, their ability to work effectively with leaders throughout the organisation becomes even more critical. And with the board, the place to start may just be with better communication.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
