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Many boards show ‘risk blindness’: Airmic

The problems at the News of the World highlighted in the recent report from the UK Government’s Culture Media and Sport Select Committee are by no means confined to News International, according to Airmic.

Last year, before the crisis broke, Airmic warned that ‘risk blindness’ by boards was a recurrent to UK business.

“Events that bring down or seriously damage otherwise successful companies are normally the result of their boards failing to see - or just choosing to ignore - underlying risks,” said an Airmic statement issued on June 7, 2011.

The warning was issued on the back of research* conducted on behalf of the association by the Cass Business School, which investigated 18 of the most significant corporate failures of recent times. The conclusions found that these apparently unrelated catastrophic failures shared the following seven key points of failure:

  • Board risk blindness;
  • Failure of NEDs to exercise proper oversight;
  • Inadequate leadership on ethos and culture;
  • Defective internal communication;
  • Risks from organizational complexity and change;
  • Risks from incentives;
  • Failure to manage the ‘risk glass ceiling’ which exists between the board and operations.

It was, however, risk blindness and the associated ‘glass ceiling’ that emerged as the most consistent threat. This can be described as boards not seeing – or choosing to ignore – vital risk information to be found elsewhere in their organizations. These sentiments were echoed faithfully in Tuesday’s report by MP’s, which said:

“If at relevant times, Rupert Murdoch did not take steps to become fully informed about phone-hacking, he turned a blind eye and exhibited wilful blindness to what was going on in his companies and publications.”

“This is the latest case in a long line of failures of boards to exercise proper governance. This case displays two other characteristics which were apparent in our study. Firstly, when there is a crisis, almost everything will get out into the public domain including internal emails and reports as well as comments from all levels of the organization. Secondly, the company’s reputation will be devastated. The lessons from this should go onto every board agenda under the heading ’Could something like this happen here?” said Airmic chief executive John Hurrell.

* Roads to Ruin, published by Airmic, July 2011

•Date: 8th May 2012 • UK •Type: Article • Topic: Enterprise risk management

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