July 2014 Newsletter

Optimise your governance, risk and assurance. Get it humming.

Current trends

During this quarter we’ve been working around Australia across the private, government and not for profit sectors.

Four key themes have come up for us in recent months.

1. Disruption (strategic risk)
2. Risk appetite
3. Assurance frameworks
4. Stakeholder alignment

1. Disruption (Strategic risk)

“Operational risk won’t kill your organisation in the long term, but strategic risk will.”

We’ve been writing, teaching and advising on strategic risk for seven years now. Today’s buzzword for much of what we’ve been talking about is disruption. There’s lots of it and it’s affecting everyone’s operating models and business models.

The days of incremental improvement and use of market power without a strong strategic capability are long gone. As Elizabeth Bryan said at SOPAC this year “every organisation will face major strategic change in the next five years just based on the forces of technology and international competition alone.”

To be successful, organisations must be both well positioned and well run. Being well positioned requires a number of strategic capabilities, most importantly having a good sense of strategic opportunities, risks and impeccable timing.

We’ve been helping a number of organisations to develop their strategic capabilities and to proactively manage strategic risk. This is exciting and urgent work. To find out more, check out our work at Resilient Futures.

2. Risk appetite

“By being risk averse, are you being opportunity averse as well?”

We’ve seen a lot of demand for risk appetite work with boards lately, and quite rightly so, it’s one of the most important things that a board does.

But much of what we see in risk appetite is based on a framing of risk-avoidance rather than seeking opportunity and positioning the organisation. In our opinion, risk tolerance discussions rebranded as risk appetite can stymie organisations significantly.

The paradox of this is that conservative boards in an effort to minimise risk may be inadvertently increasing the risk profile of their organisations in the long term by not taking necessary risks along the way.

This is critically important when business model disruption is underway and strategic response is required.

Talk to us to find out more.

3. Assurance Frameworks

There’s a lot of jargon in assurance and this can act as a barrier to those who need it. There’s also a myriad of groups that provide different internal and external versions with up to to five lines of defence internally through to audit, review and evaluation for external parties.

We’ve been working with organisations on mapping out the various assurance options, to make them readily accessible to those who need it, and for those in governance roles to make sense of the myriad of different elements.  For internal functions this can be a valuable communication and sales tool.

An assurance menu can help get things moving and is very relevant in today’s era of increased accountability. Talk to us to find out more.

4. Alignment

Ever since we first researched audit committee alignment in 2001 we’ve consistently found that stakeholder expectations drift from those of support functions over time, leading to expectation gaps. In addition, not only do expectations move, but views can differ significantly between committee members leading to varying expectations within organisations.

Getting consensus amongst audit and risk committees and other stakeholders of what they can and should expect, and making sure their support functions are on the same page is an important periodic task. We find that having an independent facilitator can help to allow committees to learn what’s possible and also communicate expectations in a safe environment. For Chairmen this reduces friction and speeds up meetings, for Committees this empowers them and ensures high performance, and for support functions this is a critical insurance policy for their future support.

Other news

We’re pleased to be appointed to the Australian Institute of Company Directors’ and Institute of Public Accountants' expert panels. AICD members and IPA members can now get short and sharp “micro advice” from us via the Director Assist platform. Click here for more.

There's a bunch of new guidance on the latest ASX Principles & Recommendations which we've co-written for the Institute of Internal Auditors.  If you've got an interest in risk or internal audit in the listed sector, you're sure to find the fact sheets a helpful read.

We’ve also done a significant website revamp with new content, white papers and a range of other goodies. We’d be delighted if you’d like to take a look at www.todddavies.com.au and if there is anything of interest, we'd love to hear from you.

We look forward to hearing from you soon.



Todd


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