Business Day (Johannesburg)
Sanchia Temkin
3 November 2009
Johannesburg — BOARDS must ask tougher questions of management to fully understand the controls they have in place and the changes they propose to their company's risk functions.
A new report from Ernst &Young, on meeting today's financial challenges, explains that many businesses were hit unusually hard by the global economic downturn because they did not effectively plan for the effect of external risk.
In many cases this oversight affected the financial reputation of companies and directly led to investors and other key stakeholders requesting more detailed information and transparency ahead of investment decisions.
Christian Mouillon, global assurance vice-chairman at Ernst & Young, said at the weekend: "Our research shows that many organisations need to improve their oversight of risk management. The scope for boards and audit committees to improve is increasing and it is essential for impacting on the company's overall performance."
More focus has been placed on the role of risk management in the wake of the recent corporate governance report by Mervyn King, chairman of the King Committee on Corporate Governance in SA. He pointed out that accountability and transparency (of the board) were paramount.
Mouillon said a major shift in perception was needed to change that attitude that the risk function was just another exercise in compliance.
Ernst & Young's study found that 76% of 153 audit committee members around the world found their role had become more challenging over the past 18 months. Only 13% rated their risk function as very effective. Four in ten companies polled separately for the research expected to increase their risk-management resource.
Mouillon said the research highlighted the need for firms to take a broader view of their risk-management function.
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