May 6, 2025 Responsible risk taking
What governs how a director acts when making decisions, particularly decisions on risk, on behalf of a company? The Companies Act 2006 might be a good starting point but it is by no means the only port of call. Depending on the nature of the business sector, directors may have to take into account a whole raft of legislative and procedural regulations when taking decisions which will be in the best interests of the company, its stakeholders, employees, customers and others.
Could acting on behalf of all those competing interests lead directors to be risk averse, to chart a safe middle course which never threatens to rock the boat? Well firstly, get the balance right and far from competing, the various interests merge into a cohesive whole in which the company delivers benefits for all of its stakeholders. And secondly, there is more than a grain of truth in the saying nothing ventured, nothing gained. Chart too safe a course and the company is in danger of dying from inertia.
So some element of risk can in fact be healthy for a company, helping it to grow and compete in a changing marketplace. That’s why in launching The Financial Reporting Council’s annual plan in March 2025, FRC CEO, Richard Moriarty commented: “If the FRC as a regulator is to encourage economic growth and investment, I believe it is important we support responsible risk-taking, not seek to eliminate it.”
As well as being a key area of focus for the FRC, responsible risk taking is also very much in the minds of the Institute of Directors. Towards the end of April 2025, the IoD announced the launch of a commission which has been designed to “explore the role of non-executive directors in ensuring responsible risk-taking and effective governance.”
Whilst acknowledging that non-executive directors have a key role to play in both challenging assumptions and adding to boardroom debate, the IoD also adds a note of caution by citing recent company collapses which have partly been due to an overreliance on non-executive directors. Led by the Rt Hon. Baroness Evans of Bowes Park, the IoD commission seeks to understand the role of non-executive directors in a changing world with a particular emphasis on the part which they play in helping organisations to make effective risk judgements which can lead to growth.
Elemental offers board director and trustee training encompassing areas such as building an understanding of the duties of directors, the basic principles of good governance, and the role of both executive and non-executive directors.
