Risk awareness

Introduction

In any organisation, risk awareness is a key governance element. An organisation’s strategy should be formulated only after a thorough and relevant identification of risk.  In the Crown governance context the ‘risk geography’ has its own unique features as well as the more familiar risks applicable to all.

A board’s role in relation to risk

Board members need to ensure an appropriate and relevant ‘risk aware’ approach is in place and that the special features applicable to the Crown sector are understood by the board. The board’s approach needs to be one of strategic risk management.

A prudent board will regularly and systematically review the risks facing its organisation. There should be clear policies in place that clearly define the boundaries within which the Chief Executive and management operate and the board should also be satisfied that there are contingency plans in place to deal with risks that cannot be controlled or mitigated.

What is risk?

Some relevant statements applicable to boards include:

• "Risk Management is the process by which the Board (and Chief Executive) ensures that the organisation deals with uncertainty to its best advantage.’’  Nine steps to effective governance, second edition SPARC (now Sport NZ), 2007.
• "The chance of something happening that will have an impact upon objectives.’’ Standards NZ; AS /NZ 4360.

The risk geography for Crown boards

Some of the unique features for Crown boards include:

• The Official Information Act, Parliamentary Questions and Select Committee appearances which ensure that much of a Crown-connected organisation’s operations are subject to a wide scrutiny that is in the public eye.
• The special reporting requirements for an organisation that are contained in the organisation’s own legislation (or enabling documents such as a Deed of Trust) and other enactments (e.g. Crown Entities Act 2004, Schedule 4, Public Finance Act 1989). This can mean that the nature and the scope of information differ from the requirements in other sectors.
• Conflict of Interest requirements are more prescribed in the Crown sector due to the ‘accountability to the public’ responsibility of Crown organisations.
• The need for high standards and a clear code of ethical behaviour is an integral feature of Crown governance. To the public, perception can be reality. For Crown boards a simple question may be: “Could this be a future headline?’’ or “What would this look like on the front page?”

Appendix

Web links

• Managing Risk is discussed on the Te Puni Kōkiri governance website at: TPK Guidance 
• Risk management in the Crown sector is discussed in a recent State Services Commission report in regard to “Cost escalations in a regional prisons development project”. The report relates to a government department but many of the principles stated and observations made will be of interest to Crown sector board members: www.ssc.govt.nz/node/2003