Before I couldn't spell "Corporate Governance"

... now I do it

Corporate governance has succeeded in attracting a good deal of public interest because of its apparent importance for the economic health of corporations and society in general.

Corporate governance - which can be defined narrowly as “the relationship of a company to its shareholders or, more broadly, as its relationship to society -…. ", from an article in Financial Times [1997].

The first step to good Corporate Governance is to get past the idea that risk management applies only to safety. Start thinking about how risk management can be applied to all aspects of your business:

• Contractual Risk – will you get paid for the work you do?
• Variation Risk – is working outside of the contract going to reap dividends?
• Financial Risk – is your level of debt manageable and are you funds safe?
• Environmental Risk – compliance to Australian Standards AS 1400.
• Occupational Health and Safety – compliance to AS 480.
• Legal and regulatory compliance. Industrial Relations compliance and the risk of disputation.

Risk management is a discipline for living with the possibility that future events may cause adverse effects.

Get past the notion that risk management applies only to safety.

An introduction to the new risk management Australian Standard AS 4360: 2004

In the simplest sense, the standard applies the concept that risk applies to all aspects of a company's operations, not just safety. Indeed the definition of hazard is: “a potential source of harm”. Note that there is no reference to person or property. The standard also introduces the concept of risk avoidance which is a decision not to become involved in, or withdraw from a risk situation.

Whilst the standard applies similar terms such as risk, hazard and risk assessment, the broader implications of failing to deal with risk at a strategic business level are the focus of the material. This is to say that risk management is a process whereby the organisation assesses, controls or avoids any situation or circumstance that can cause harm or damage. For example, what are the risks and measures necessary to avoid industrial action or failing to recruit effectively? To elaborate, if an organisation does not identify the likely problems with its industrial relations, loss can occur to the stakeholders. Likewise, many issues (hazards) can arise if an organisation does not recruit in accordance with the law.

It is in this regard that the impact, or consequences, of failing to assess risks on this level can be just as damaging in the short or long term, to an organisation's viability. In it's most basic form, it is a process to establish what can cause your organisation grief and how to remedy the problem to a win – win situation. It is in fact like saying “I knew this would happen, but I didn't do anything about it.” To use another analogy, it is like utilising a very well informed crystal ball to fix problems before they happen. The sequence is logical and can be followed easily.

There are seven steps to successfully managing risk:

1. Communicate and consult: talk to all affected parties at each stage to determine concerns and issues as well as attitude.
2. Establish the context: identify just what circumstances are occurring before during and after the risk assessment process. This will allow you to establish what criteria or standards will be established against which you can carry out the risk assessment process.
3. Identify risks: identify what events, happenings or circumstances could cause harm to the organisation.
4. Analyse risks: determine the likelihood and consequences of the risk and hence analyse the level of risk to the company/ stakeholders. This allows you to prioritise the level of threat.
5. Evaluate risks: make a comparison of the risk levels against the criteria you had established in step 2. This allows you to make decisions about which hazards will be addressed first, second and so on.
6. Treat risks: use available resources, and commit more resources if necessary to fix the problem. The most valuable resource will be people.
7. Monitor and review: continually check the effectiveness of the controls you have put in place. Remember to be as objective as possible. If something isn't working, fix it.

 

So why not make risk management the platform for your business?

Life is risky.

Risk can involve failure, but if we place too much emphasis on failure rather than on rewarding success, people will not take risks, and neither the people nor the business will flourish.

Taking intelligent risks will often mean taking bold decisions rather than 'making do' with “it'll be okay”.

Choosing to start up a business and employ people is very risky.

Your ability to consciously and consistently manage risk will be the difference between the success and failure of your business.

Sue Stack and Iain Campbell

Stack Masula