Fundamentals of Risk Management

statutory responsibilities of management
There has been a developing trend in many countries towards ensuring greater
clarity in regard to the obligations of company directors. The general duties of
directors have developed in the common law over many years in most countries. The 
Companies Act 2006 in the UK has consolidated the common law duties of directors 
and codified the general duties, as follows:
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act in accordance with allocated responsibilities;
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act in accordance with the constitution of the company;
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promote the success of the company;
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exercise independent judgement;
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exercise reasonable care, skill and diligence;

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Risk management responsibilities
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avoid/declare conflicts of interest;
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not accept benefits from third parties.
The responsibilities of directors are important in relation to risk management,
and adequate management of risk will assist in the successful fulfilment of these 
obligations. Risk management is particularly important in promoting the success
of the organization and exercising reasonable care, skill and diligence. Directors of 
organizations need a good understanding of risk management so that they will be in 
a better position to fulfil their statutory and other duties.
Usually, board directors will be either executive or non-executive directors of the 
organization. In certain organizations, such as charities and most government depart-
ments, executive directors will meet separately as an ‘executive committee’ and the 
non-executive directors will form a ‘board of governors’. Typically, executive directors 
will be full-time employees of the organization with a specific area of responsibility.
Non-executive directors have an important role to play in risk management 
within the organization. However, this role will normally be restricted to audit,
assurance and compliance activities. It may be inappropriate for non-executive
directors to become involved in the management of the individual risks, because of the 
conflict with non-executive audit responsibilities and because executive directors are 
in a better position to understand and deal with the risks that the organization faces.
The box below provides an example of the role and expectations of non-executive 
directors. In general, non-executive directors should not become directly involved in 
the day-to-day management of the organization. In most cases, their role is to assist 
with the formation of strategy and the monitoring of performance. Implementation 
of strategy is the responsibility of executive directors.
The role of the non-executive director has the following specific key elements:
Strategy
constructively challenge and help develop proposals on strategy
Performance
scrutinize the performance of management
Risk
challenge the integrity of the financial information
Controls
seek assurance that financial controls and systems of risk 
management are robust and defensible
People
determine the appropriate level of remuneration for the executive 
directors and have a prime role in succession planning
Confidence
seek to establish and maintain confidence in the conduct of the 
company
Independence
be independent in judgement and promote openness and trust
Knowledge
be well informed about the company and the external environment in 
which it operates, with a strong command of relevant issues
role of non-executive directors

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