Recently, we outlined the way in which high performing, purposeful boards will need to achieve the right balance across four key continuums in 2025. In this article, we expand upon the second of the four considerations – risk and opportunity.
At Directors Australia, we have long held that in pursuit of sustained success, organisations require their boards to effectively understand and address strategic risk to navigate the ever-changing landscape in which we conduct business. On the flip side, boards must recognise that taking calculated risks is necessary for growth and innovation. Achieving the right board balance with regard to risk and opportunity allows for effective governance, while enabling management to drive organisational success.
What it means for boards to balance risk and opportunity
Boards that successfully approach strategic risk, ensuring it is not a constraint but rather a tool to enhance decision-making, pave the way for their organisation to capitalise on opportunities as they arise. A proactive approach to both risk and opportunity facilitates sustained resilience and competitiveness. This requires each director to understand the company’s operating environment and strategy.
Key consequences of not achieving the right balance
Not striking an adequate balance between risk and opportunity has the potential to result in several negative outcomes.
Risk management perceived as a hindrance
When a board’s attitude to risk is that it is purely a compliance function rather than a strategic enabler, it can stifle innovation and create a risk-averse culture that limits organisational growth.
Missed opportunities
Overemphasis on risk avoidance may lead to missed chances for expansion, transformation or competitive advantage, ultimately impacting the organisation’s long-term success.
Inefficient use of board resources
Lacking a structured approach to balancing risk and opportunities can lead to board and executive leaders wasting finite resources on non-strategic risk discussions or failing to allocate efforts toward high-impact opportunities effectively.
Actions for boards to take
The following mechanisms may assist boards in ensuring a well-balanced approach to risk and opportunity.
Define ‘top 10’ strategic risks and opportunities
Boards should use their deep understanding of the company’s business model and strategic environment to identify key risks and opportunities. We recommend that boards regularly discuss and agree to a ‘top ten’ list of strategic risks (that is, risks which could impede the company from achieving its strategic objectives). At the same time, the board should also consider the flipside opportunities of each of these risks.
Risk appetite statement
It is vital for boards to have a clear, meaningful and documented risk appetite statement documenting with measurable Key Risk Indicators the board’s risk tolerances in each of the strategic risk areas.
Embed risk and opportunity considerations into strategy setting and review
Every discussion about strategy is (unconsciously) a discussion about risk appetite, strategic risk and opportunity. Strategic planning and review is enhanced where it explicitly incorporates discussion on risk appetite and strategic risks and opportunities in a more deliberate and quantifiable way.
How Directors Australia can assist organisations
One of the contemporary challenges facing boards is setting a practically useful risk appetite. Directors Australia, through our board and governance advisory services, can advise and assist organisations on a wide range of issues regarding risk, including:
- Facilitating board risk workshops
- Developing risk management frameworks, including risk appetite statements, risk management policies and plans tailored to the size, scale and complexity of the organisation
- Advising on board risk reporting, and
- Delivering in-house training to support the effective implementation of new risk management policies and processes.
Our approach ensures risk and compliance management is not just a process, but results in tangible information to assist a board perform its functions and capitalise on opportunities. Underpinning this work is our Governing for Performance® framework.
By integrating the aforementioned mechanisms, boards can ensure they are positioning their organisation for future success. The ability to view risk management as a strategic tool, rather than a barrier to growth, will be a defining characteristic of high-performing boards in 2025 and beyond.
Directors Australia works with the boards of publicly listed, government, private, APRA-regulated and not-for-profit organisations Australia-wide to achieve real, ‘best fit’ corporate governance appropriate to the organisation’s nature, and thus enhance board and organisational performance. For further information or to discuss how we can help, contact us here.
**Nothing in this article should be construed in any way whatsoever as legal advice. It is the reader’s responsibility to obtain expert legal advice on any issue which requires a professional legal opinion.
Kerryn Newton
Chief Executive Officer
