Senior Management Commitment to Risk Management

The heads of risk management department in the organizations are generally battling with the answer to one question -“Is my senior management committed to risk management initiatives or are they just providing lip service?” To gauge the commitment, risk managers need answers to some tough questions. Risk managers need to come out from under the cloud of unknowing and false perceptions.

Here is a list of 15 questions which help in providing a reality check.

  1. Is the head of risk management having representation at the board level?
  2. Is the head of risk management having direct reporting to the CEO of the organization?
  3. Is risk management a parameter for determining CXO and board members performance compensation?
  4. Is risk management appearing in the balance scorecard of the CEO?
  5. Has the board assigned risk oversight to audit, risk, governance, and / or compliance committee?
  6. At what frequency does board interact with the audit, risk, governance, and / or compliance committee and its members?
  7. Are the recommendations suggested by the audit, risk, governance, and / or compliance committees implemented by the board?
  8. At the time of formulating strategy and business plans, does the board invite head of risk management to give an assessment of risk exposures?
  9. Does the senior management have an organization wide risk dashboard which they refer to for daily monitoring of operations and activities?
  10. Are risk management departments given equal importance by senior management in crises and regular operation days?
  11. Are the proposed strategy, plan and budgets of risk management department approved to a significant extent on a priority basis, at the same level with the business operations departments?
  12. With the increasing complexity of business operations, have the risk management departments grown in size and importance?
  13. Are the risk management department heads allowed to present contrary views (in respect to business operations) to the board and are these accepted?
  14. In the recent years have the risk management departments been downsized due to financial or other constraints?
  15. Was any head of risk management department services terminated in the past for pushing risk management agendas and taking a tough stance?

Answer these questions to find how the senior management perceives risk management departments and their level of real commitment to risk management activities. If the answers for questions 1 to 13 are negative and 14 and 15 postive, then the risk managers do not have support of the top management. In this situation the risk managers are focusing on addressing risks for junior and middle management, and not the senior management.   They need to develop a strategy to get senior management commitment and support to be effective at an organization level.