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Nematrian Reference Library

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Introduction "The UK Corporate Governance Code issued in May 2010 states that “the Board is responsible for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives... [and] should maintain sound risk management and internal control systems”. Earlier this year the Financial Reporting Council held a series of meetings to learn more about how boards were approaching these responsibilities in rapidly changing markets. Participants from over 40 major listed companies - including chairmen, executive and non-executive directors and heads of risk and internal audit – discussed the issues involved in assessing and managing risk, as well as the difficult question of how such decision-making and risk management could be reported. Also involved in these discussions were a selection of investors and advisers. In addition, a number of organisations closely involved in this work kindly arranged for us to meet some of their members to get their perspective. The FRC drew three main conclusions from these discussions. The first was that there has been a step change in the Board’s focus on risk in the last few years, at least in the companies that we spoke to. This conforms to the emphasis in the revised Code on the Board’s responsibility for strategic risk decision-making. The second was that while ‘Internal Control: Revised Guidance for Directors’ (“the Turnbull Guidance”) was still broadly fit for purpose, some change was needed to reflect the role of the Board as articulated in the new version of the Code. The FRC intends to carry out a limited review during 2012. The third conclusion was that the approaches and techniques used by boards have been developing rapidly. One size very definitely does not fit all, but there were some common themes and techniques found to be useful. We therefore felt that the insights gained about the issues boards were facing, and the ways they were addressing them, should be shared more widely to reflect and contribute to best practice. That is the purpose of this report. It is not an attempt to provide guidance, and should not be seen as such. Rather it is an attempt to capture contributions from companies, investors and advisers in the belief that these may be helpful to other companies in thinking about their own approaches to risk."

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