The Risk & Values Alliance

Are Boards Forgetting The Basic Interrelationship of Risk and Values?

(Article originally appeared in the March 17th, 2021 'Across the Board' publication, a Board Director, Board Advisor, C-Level, and Business Leader publication reaching 26,500+ exceptional business leaders in over 70 countries with articles focused on leadership, strategy, and governance topics - sign up here)

Evaluating risk is nothing new for Boards. This duty has been intrinsically linked with Board Director responsibilities from the inception, with growing ability for organizational risk to be 'dashboarded' for the Board of Directors through increasingly elaborate enterprise risk management (ERM) tools and reporting. While many risk management processes such as risk identification, assessment, and reporting are embedded within management's responsibilities, there is a risk-related activity owned by the Board that is equally important - namely the oversight of risk, or more commonly known as risk oversight.

Risk: 1. The possibility of suffering harm or loss; danger. 2. A factor, thing, element, or course involving uncertain danger; a hazard.

Gone are the days where a Board's risk oversight can only focus on common, core components such as operational, strategic, reputational, and geopolitical risks. The age of 'governance simultaneity' has now arrived! Environmental, social and corporate governance (ESG), human capital tracking / disclosure, shareholder and stakeholder engagement / activism, and cybersecurity are just a few examples of a long list of additions to a Board's integrated risk oversight responsibility. For an increasing number of Boards, the sheer amount of risk components to address at the oversight level have become overwhelming and it is undermining the required holistic balance and wider focus required of a Board of Directors. This tunnel vision is in itself a growing risk, diverting much needed attention away from important strategic and comprehensive governance efforts.

When it comes to a Board's required mix of strategy and governance oversight of all risk, we have to ask ourselves if the deluge of additional focus areas have actually diverted the Board's eyes away from a foundational and fundamental risk concept. Is it possible the most basic risk concept of all is being overlooked or forgotten? Are we covertly witnessing first hand a "can’t see the forest for the trees" situation on a grand scale? This basic and fundamental risk concept I speak of is the extremely important interrelationship between risk and values.

For some, an organization's values are a list of 'nice to haves' that reside buried somewhere on a corporate website tab. For them, it is simply a checking-of-the-box exercise, because listing your values, well, it's just what you do. But for savvy Board Directors, they know an organization's values are much more than that. Values must be lived within all levels of the organization. Values form the foundation of the company. Values attract and retain the best leaders and employees. Values build trust. And yes, values lower organizational risk.

In the above diagram, notice the direct governance interaction of the Board in the areas of strategy, governance, talent, performance, and integrity (to the earlier point of existing + additional Board risk oversight areas, i.e. ESG, cybersecurity, etc., know that the Board's governance responsibilities towards these important topics should be focused in the areas of their associated strategy, governance, talent, performance, and integrity). It should be noted that beyond strategy governance, strategy development has historically been viewed as the sole responsibility of the CEO (or Executive Director as it relates to nonprofits). This is no longer the case for an increasing number of more progressive Boards. As I wrote about and expanded upon in my book, the most successful organizations I have worked with share the creation of a) the goal-setting for the organization, and b) the development of the strategy responsibility and accountability between the CEO and the Board. This approach has become a major evaluation component within our Board Architecture Assessment (BAA) when predicting the current and future success of a Board and its associated organization served ...and yes, it is a very accurate input indicator.

In the center of this governance model, it should not be surprising that ‘risk’ holds the coveted bullseye position. I like to add ‘overseeing uncertainty’ as an additional viewpoint. Maneuvering through risk, both real and implied, is obviously the purpose of all governance actions. It is surprising to many, however, that ‘values & culture’ holds an equally important center position when discussing governance. This is because sound (and ‘lived’) company values lead to a meaningful and grounded culture that ultimately lowers organization risk. 

 Values = Culture = Lower Organization Risk

This is a profound point that should always be central to individual Board Members and the entire Board in all dealings, encounters, and interactions with the companies they serve. After all, the excuse of 'governance simultaneity' or overload for a realized risk is not going to cut it with stakeholders and shareholders.

Is your Board's risk oversight directly linked to your organization's values?

Reach out to Mark A. Pfister to properly integrate your Board's risk oversight and organizational values with his Consulting & Advisory offerings, Board Director Coaching & Certification program, and International Speaking Tour topics.

Mark A. Pfister - Non-Executive Director | CEO | Chief Board Consultant | Corporate Strategist | Board Macro-Influencer | Speaker | Author - www.PfisterStrategy.com

About the Author: In addition to serving on numerous Boards, Mark A. Pfister is a renowned Board Consultant, 'Board Macro-Influencer,' certified Board Director, speaker, author, and advises public, private, and nonprofit Boards in efficient and effective operations. Known as 'The Board Architect,' he is also the inventor of the 'Board as a Service' (BaaS) engagement model and an expert Project Executive frequently advising on strategic global initiatives in their initiation and operational phases...... << read full bio here >>

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