Anticipating risk

Anticipating risk

When it comes to corporate governance, it has to be said that some aspects are more straightforward than others.  For example, submitting returns on time to Companies House or to the tax authorities is not difficult if records are kept up to date and if the directors are ‘time aware’.  Similarly, setting out where the responsibility lies for the management of the company and the achievement of key tasks should be a fairly simple job allocation task.

But there are other aspects of governance which require board members to draw on all of their leadership knowledge and ability.  One of these is anticipating the future effects of events which are outside the control of the business.  Creating the vision, drawing up strategy, anticipating risk is not straightforward when outside influences may change the parameters overnight.

Let’s look at one example, the UK’s membership of the EU.  With the general election out of the way, David Cameron now has to deliver on the Conservative pledge to hold an in/out referendum on EU membership by the end of 2017.  Prior to that he has to enter into negotiations on matters including obtaining safeguards to ensure that changes in the single market cannot be imposed on non-Eurozone members and that national parliaments would have greater powers to block EU legislation.

Irrespective of the result of the referendum, the negotiations could impact on business legislation and on trade.  So how do businesses factor these potential, and unknown, changes into their planning and governance regimes?  Well, speaking to the BBC’s Today programme the Governor of the Bank of England, Mark Carney, said that at the moment businesses “have not yet acted on that uncertainty,” adding “or to put it another way, they are continuing to invest and they are continuing to hire.”  At the same time Mr Carney called for the referendum to be sooner rather than later in order to remove uncertainty from the market.

Whilst negotiations are ongoing how do directors carry out their duty to develop strategies which will mitigate an unknown level of future risk?  Well, the true answer will vary from business to business but in general the key approaches are to:

  • Be aware by monitoring reports of negotiations and potential developments
  • Consider how the business would be affected by changes in legislation and/or international relationships
  • Spend only a proportionate amount of time in developing alternate strategies
  • If it matters then make your voice heard through trade organisations or via your MP

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