The world is becoming more complex by the minute. As this happens, many Boards are stepping back and asking themselves how their role should continue to evolve to best help the organization. Many Boards are expressing a desire, as well as realizing the necessity, to go to a more strategic level to continue to serve the organization in the appropriate role. One of the challenges and questions for Boards is where and how to start that process.
One way to get started is by working to align the risk tolerance of the Board and Management team in light of the organization’s strategy. The questions and discussions around risk are not always connected to the thinking and discussions around strategy. As a result, and quite unintentionally, the strategic direction and potential opportunities are viewed separately from risk. On top of this, there can be a lack of clarity on risk tolerance which creates misunderstandings and can result in strategic confusion and missed opportunities. An example of this is around credit risk:
- The Board and Executive team agree that the organization should expand its lending into lower credit tiers. The opportunity being discussed is to make more loans at higher yields and serve a broader range of customers. There is acknowledgment that there is more risk in the lower credit loans, but clarity around the Board’s and Executive team’s appetite for this risk is just not achieved.
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