Risk transparency is the ongoing resilient state an entity can achieve and maintain with leadership and management commitment to the pursuit of strategic, cultural, and operational excellence via open and objective risk and reward awareness and management. Risk transparency can be achieved and sustained by implementing ongoing scanning, awareness, communication, management, and measurement of key risks and opportunities internally and externally.
Several attributes of risk transparency include simplification of the complex, deriving order from chaos, driving strategic and operational focus and action to fact based issues, and empowerment throughout the entity’s key internal and external stakeholders via communication, respect, and accountability.
The mission of RISK TRANSPARENCY is to provide resources for leaders in strategy and execution to strengthen their understanding of the balance and synchronicity of identifying, measuring, and managing key risks vs. rewards in our ever changing world. Risks have been managed since the beginning of time to create and protect value. Risks are the genesis for the creation of entities, as before a business idea or strategy can advance or a relationship can be developed, a decision must be made to take the risk of time or capital to invest in advancing the idea or relationship.
Businesses, governments, not-for-profits, families, etc. have a core commonality as they each have leaders who create strategies, operate their own cultures, and drive for short-term and long-term execution of their plans and goals. How focused upon strategic endeavors and how well their goals are operationalized is contingent upon many factors, all of which consciously or inherently assess and respond to the risks and respective rewards of achieving those strategic and operational objectives.
Societies continue to evolve and are beginning to shift from the Third Industrial Revolution (i.e., Digital Revolution) to the Fourth Industrial Revolution (i.e., technology embedded within societies and the human body). Traditional risk and reward methods and models are challenged by the velocity, volume, and technological and societal impacts of changes and the human and capital resources required to focus and execute. The new forms of global interconnected and instant communication and social media channels introduces challenges, scrutiny, and competition for influence and share of the minds of all key stakeholders including leaders, employees, customers, family members, etc. The article The Fourth Industrial Revolution: what it means, how to respond by Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, provides additional thought provoking considerations and impacts of the Fourth Industrial Revolution.
Many C-Suite and other key leadership roles have evolved from the need to organize, manage, and control new types of key impactful functional area information. For example, the Chief Financial Officer role evolved as a key team member to ensure increasingly complex financial and accounting matters were appropriately addressed, accounted for, and reported. The Chief Information Officer role was established to lead and oversee the expanding enterprise-wide information and data systems and processes. Chief Compliance Officer positions evolved from the need to ensure organizational compliance with ever expanding and changing laws and regulations and to establish and support the ethical culture of the entity.
Business models and risks are shifting from linear to non-linear due to the digital and technology revolutions. This shift is challenging all types of organizations to further strengthen their enterprise-wide and cross-functional awareness and management of key risks to strategies and operations. For one risk area, cyber security, the increased risks and potential exposures to companies, governments, etc. has resulted in a strong demand for Chief Information Security Officer positions that can aggregate and manage the cyber security threats across the enterprise. The interconnected, high velocity, and potential systemic nature of companies in the financial industries has resulted in the development of Chief Risk Officer positions to coordinate enterprise-wide identification, management, and communication of key risks. The Chief Risk Officer position is now becoming more common across many industries and government entities as the understanding of the benefits of enterprise-wide risk management becomes more clear.
We believe the interconnectedness throughout societies, economies, and political entities occurring due to the Third and Fourth Industrial Revolutions will increase the need for businesses, governments, not-for-profits, families, etc., to expand their key risk awareness and management efforts. The identification of potential causes for not achieving a strategic or operational objective should be more distributed throughout an organization, agile, and owned by key functional leaders. This provides the opportunity for a more risk aware and empowered organization to also see the potential key opportunities that can be achieved by managing the risks with new processes and measures.
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) recently updated their enterprise risk management framework titled Enterprise Risk Management - Integrating with Strategy and Performance (2017). The updated framework was developed to be used by any type of entity and it establishes an effective standard for enterprise risk management. To learn more, you can download the Executive Summary free of charge and additional information on the framework is available from the COSO website.
We believe the role of the Chief Risk Officer will evolve to be more of a hybrid of responsibilities to augment the traditional Chief Operating Officer, Chief Financial Officer, and Chief Information Officer. This transition will occur as risk focus matures from its current control and compliance orientation to a more strategic and operational continuous improvement process.
We look forward to providing additional risk transparency resources and insights to enable you and your teams to achieve your strategic and operational value creation and protection objectives on your path to organization resilience.