No business is competitive without risk. But if you don't have visibility of this risk, it is difficult to control. Which is why the first rule of risk is: spot it, measure it and monitor it.
Identifying potential issues is vital when it comes to governance risk. After all, little of this will have been taken on consciously. Where the risk emerges from people and processes, it can grow unnoticed within your organisation. In the case of regulation, it can be suddenly thrust upon you.
Types of governance risk
Governance risk can be tracked across four main organisational areas:
Structure - from boards and steering groups to business models and
Processes - from new product processes and communication channels to operations, strategic planning and risk appetite
Information - from financial performance and audit reporting to management, risk and compliance reporting
People and culture - from leadership at the top to accountability and transparency throughout the organisation, including relationships with regulators
Getting it right
If you are going to manage your governance risk effectively then you need to start right at the top. Do you have clear view of your entire organisation and do you have a governance framework to control it?
You will also need to embed GRC programmes at all levels of your business. Is everyone clear about their roles and responsibilities? Do people understand the potential impact of their behaviour (for example when bypassing established rules)?
You should also benchmark governance arrangements in specific areas: does your internal audit team inspire confidence beyond the ï¬-nance function?Is your remuneration policy both effective and responsible? Have you adequately addressed all your regulatory requirements?
You will also be looking for small issues that have escaped your notice until now. Any one of those small issues can have a disproportionately large impact on the reputation of your whole business. So what is the worst that could happen? From which parts of the business is that scenario least and most likely to emerge?
All of which may seem like negative thinking. But get it right and you'll be entitled to feel much more positive about the future.