Corporate risk reporting needs to tighten up
The way many companies report their risk management activity is opaque, lacking in detail and detached from overall corporate strategy, according to the risk management association Airmic and the Institute of Chartered Secretaries and Administrators (ICSA).
The two organisations will urge the Financial Reporting Council to tighten up risk reporting when it updates the UK Corporate Governance Code later this year. Although companies listed on the London Stock Exchange are required to describe their risk management activities annually, research published jointly by the two organisations reveals a wide disparity in the quality of risk reporting.
It found that, whilst firms in the leisure industry have a generally high standard of risk reporting, most of those in sectors such as food and drink are uninformative. Chemical and pharmaceuticals and mining and energy were two other industries that, although high-risk, were not generally of a high standard.
Overall, many companies treat risk management as a stand-alone activity in their reporting, instead of describing it in the context of the wider corporate strategy.
The research lists several advantages to good risk reporting, apart from the widely accepted ones of accountability and transparency. It can enhance shareholder confidence by demonstrating that corporate strategy is underpinned by a “dynamic and comprehensive” risk management framework.
“If you’re good at risk, then why hide the fact?” commented Airmic technical director Paul Hopkin. “The impression is that many firms with strong stories to tell see risk reporting as little more than a compliance exercise. Yet the exercise can underpin confidence in the company, whilst the discipline of having to report can help firms to sharpen their practices internally.”
Director of Policy at ICSA Seamus Gillen said: “Stakeholders generally, and shareholders in particular, cannot make a judgement about the quality of a company's strategy if there is not a strong narrative on the risks to that strategy, and the way in which sound risk management can provide further opportunity. We need to see a more compelling, linked-up narrative.”