Easing tensions at the top.

• Author: Ryan, Owen
• Position: BOARDS OF DIRECTORS

Many management teams and boards have become increasingly engaged in assessing and balancing the risks their enterprises face. This can heighten tension between management and the board, particularly as the board asserts or reasserts its risk oversight role. This tension is not new. It arises naturally although it tends to escalate in times of heightened risk and economic turbulence.

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When tension does escalate, it is best to be prepared to address it. Given that most risks ultimately translate to financial risks, financial executives are well-positioned to help the executive team and board members address this tension.

That means guiding and, at times, leading discussions of risk in the C-suite and with the board. It also means helping to develop the clearest possible picture of enterprise risk and risk management efforts.

Risk and Roles

Executives often view their primary role as being responsible for increasing the value of the enterprise, while many board members, in their oversight role, consider preserving value as their primary responsibility. Executives choose and implement strategies aimed at achieving enterprise goals, and then manage the risks posed by those strategies. Board members oversee management's decisions and risk management efforts, and offer appropriate guidance.

This arrangement generally works well when business conditions are stable and risks appear to be low. But, when business conditions are unsettled, complexity is on the rise and the level of risks is high --as they have been in recent years--tensions between management and the board can escalate.

Managing escalating tension begins with grasping other points of view. Board members are increasingly and understandably vigilant regarding the risks that their enterprises face, and they want to become better at exercising that vigilance.

Experienced directors know that management--and not the board--is responsible for risk management, but quite a few have recently dug deeper into the subject of risk. Many want to know how they should be exercising risk oversight. Some don't know which questions they should be asking. And many are wondering what information they need in order to fulfill their risk oversight role--without being overly intrusive or appearing uninformed.

Chief financial officers, in particular, are well-positioned to help board members who are concerned about risk. They have the financial information, enterprise-wide perspective and...