Effectiveness

Improving Board effectiveness

The last few months over the world has seen a new order when it comes to thinking and in particular managing risk. Specifically the way a business looks and assesses the risk needs increased attention.

No longer an area a business can avoid as the impact is now global and can have huge ramifications on not only the business but the businesses that deals with and that business and that business etc

Risk management used to be seen as something large companies used to deal with and operate at board level. However seen the last few months things have changed and business needs to think long and hard about how it deals with this. Having read Richard Branson’s autobiography as well as books written about him, it is clear that covering the downside in any business decision is a key element in his mind.

‘Cover the downside’………and do tons of PR <smile>

Manmade disaster can happen at anytime and can have a dramatic effect on your business. Let’s think back for only the last year or so. A few examples of disasters that may have effected your business….what did you have in place to mitigate this risk ?

Bunsfield Explosion
Volcanic ash
Snow
Postal Strikes

Explosion – It is not always the physical damage that causes disruption. It’s the ramifications of the incident that causes the issue. A really good example of this would that during this disaster, sure the damage was visible in that buildings suffered. What is not always thought about is the fact that the police will put exclusion zones around the area. These exclusion zones can be far and wide and as far as a few miles. How would you run your business if you could not get into the office ? Remote access to your computer systems ? What happens if your computer systems were blown up as well ? You do have offsite backup don’t you ? What do you do with all your staff who cannot get into the office. Do they all work at home, can you contact them ? Do you have a disaster recovery plan ?

Volcanic ash - This disaster really came out of the blue. The ramifications of this were not quite so apparent until a few days in. Smaller companies didn’t worry about executive business travel around the world, so it was too much of an issue right ? Well suddenly not being able send or receive parcels from around the world was something that caught us out. Supply chain management was something we have not sharpen up on as a result of this .

Snow

Even the best weather forecaster can only predict a few days in advance accurately and the last snow that fell on the UK had a pretty major effect. In particular the distribution network suffered very badly. Weather that was getting the train to work for your staff, sending and receiving supplies or just opening up the warehouse. It’s difficult to really mitigate against these events, however it is possible to at least try have some basic plans in place to be able to limit the impact. For us, it was certainly the distribution network that caused us pain.

Postal Strikes

Like Richard Branson, it was when the postal strikes started to effect his business as in he was unable to send (or receive) parcels. This was when he decided to open a new sales channel, a shop network.

Improving board effectiveness

All boards are able to improve on its performance, no board has reached its optimal performance level and is required to fine tune its ability and awareness of current risks to the business. It is important any board is able to react appropriately to chances in its operating environment (business or otherwise).

Formally the UK Corporate Governance Code recommends that the performance of the board is reviewed annually. One area that the UK Corporate Governance Code particularly advises boards review with good attention is the whole are of risk. All boards can assess risk by a simple strength and weakness review of any possible issues that could cause business disruption.

Not all risks can be mitigated against, nor can every combination of risk be thought through. However all boards should ensure that any risks that are deemed to be likely. There is always a combination of risks that put together it would just not be possible to cover against.
Now this is where risk appetite comes in. Risk appetite is how much risk are you prepared to take rather than mitigate against. Like most things covering risk costs money or time. Lets not forget that all business needs to take risks (calculated risks) covering the down side. Competitive advantage and speed to market can leap over your competitor if your appetite for risk is stronger than their appetite.

Clearly risk is a dangerous animal which can lead you to the front or send you straight back to back with significant impact.


At 4little1s.com we run a tight ship and our board is important to us as rely on it a great deal.
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