In The Conference Board’s bimonthly publication Director Notes, author Michelle Harner examines the role of the board of directors in an enterprise risk management program.  Organizations adopting the principles of ERM as a way to better manage their business overall can be aided or hindered by the way the board addresses its responsibilities and functions as a component of the risk management process.  Harner points to a number of ERM “dos and don’ts” for directors to consider; the author also comments on the interplay between a board’s legal responsibilities and a board’s role in risk management.

Harner notes a number of ways in which directors can help their companies to build better risk management programs.  The following two points represent major themes in the article:

The board of directors naturally influences management behavior and organizational culture as a whole.  Thus, directors can make risk management a priority throughout their company by making the ERM process a priority for the board itself.  If the board is positive and proactive about addressing risk, the management team and the rest of the company will likely follow suit.

The board of directors can protect the company from litigation by actively overseeing the organization’s risk management process.  Harner, an associate dean and faculty member at the University of Maryland Francis King Carey School of Law, notes that a board that is engaged in overseeing the ERM process and that is knowledgeable about the organization’s risks actually produces the auxiliary benefits of helping to fulfill board members’ fiduciary duties and protecting the company from certain sources of litigation.

Take-away

Throughout this article, Harner promotes the merits of a sound ERM program.  ERM can enable organizations to function better overall.  However, as the author points out, the involvement of the board of directors is vitally important to risk management in numerous ways.  The board’s oversight of the ERM process itself will help to ensure that a company’s management team and other personnel are managing risks appropriately.

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