Do you ever have the feeling there’s so much to do that you don’t know where to start? Do you ever feel overwhelmed with the amount and speed of change?
Directors often share those sentiments. That’s natural, because we all tend to retreat to our safe place—to the tried, true, and comfortable practices we know.
It’s no secret that today’s world is changing faster than ever. You could argue there has never been a more difficult time to lead a financial institution.
In the midst of all these challenges, you encounter ever-evolving risks (controllable versus uncontrollable, strategic versus tactical, and external versus internal) that you must address to preserve what you’ve created.
But preservation in and of itself isn’t enough. How do you simultaneously create new value?
Frequently used terms such as enterprise risk management (ERM) and governance, risk management, and compliance (GRC) refer to various methodologies intended to integrate the internal and external practices we often coin as risk management.
But really, what’s the point of it all?
Focus on present and future
Some say “a firm’s ability to weather storms depends on how seriously leaders take risk management when the sun is shining and no clouds are on the horizon.”
The challenge for board members is knowing what to take seriously and for which storms you should prepare. A world full of surprises and unknowns awaits. But that shouldn’t lull you into inactivity. You must do your part to limit uncertainty and ensure you’re appropriately addressing the current environment while continually planning for the future.
A California Management Review article states “the basic problem confronting an organization is to engage in sufficient exploitation of existing assets to ensure its current viability and, at the same time, devote enough energy to exploration to ensure its future viability.”
In many cases, the article suggests, striving for this equilibrium creates the fundamental tension at the core of an organization’s drive for long-term survival.
Exploration of the future, by its very nature, is inefficient and unknown, and it generates an increase in the number of bad ideas or inaccurate forecasts. But without continued and sufficient emphasis on exploring the future, firms facing change likely will fail.
GRC models develop and enhance this concept of organizational ambidexterity.
In most cases of perceived risk management, management too often treats these efforts purely as compliance issues they can solve by drafting more rules and ensuring all employees follow them.
In other words, they focus on the present.
Effective risk management (or organizational ambidexterity) goes well beyond that. Boards, supervisory committees, audit staff, management, and general staff all play a role.
Instead of delegating the risk manager role to management (which often pushes it down further to compliance), the board should embrace risk management as a critical tenet of its responsibilities.
How does your board rate?
A common theme emerged during a session I facilitated recently at the CUNA ERM Institute for Directors: Although board members know they must play a more significant part in identifying and strategizing around future opportunities, value-preservation opportunities consume much of their time.
Based on board packets, meeting agendas, and executive oversight, today’s boards focus much more on historical and current performance, structure, rules, and corrective actions than on creating and executing strategies to enable the organization to take advantage of future opportunities.
If you graded your board on a scale relative to your primary focus, ranging from “1” (value preservation) to “10” (value creation), where would it fall? Are you satisfied with your answer, given the reality of the evolving environment in which you operate? If not, what are you willing to do about it?
It’s time credit union leaders consider and redefine organizational management from a risk perspective. You need to streamline priorities so you have more time to focus on projects and strategies that really matter as you consider the long-term viability of your organization.
Although part of fulfilling your role to preserve member value includes oversight and assurance, your ongoing relevance and value depends on your ability to identify and manage uncertainties and opportunities.