The 2019 State of Risk Oversight report from NC State recently came out with some interesting results about the current state of risk management leadership in organizations.
The report breaks down results into four different industry-categories – large organizations, public companies, financial institutions, and not-for-profit.
Over the last five years, nonprofits have seen the biggest increase from 22% to 53% of organizations who are designating a Chief Risk Officer (CRO) or equivalent title to lead their risk management efforts.
Talk about a significant increase!!
Other industry-categories are up too over the last five years, but large organizations and public companies have seen a slight dip over 2018, which is surprising considering increased demands for better risk oversight.
We don’t know the exact reason why more organizations are appointing a CRO, but the fact that close to 60% of respondents in this year’s survey claim the volume and complexity of risks have “mostly” or “extensively” changed in the last five years is one likely explanation.
It’s clear that more organizations today are designating a CRO, which is an increasingly important role for many organizations, especially when the operating environment has gotten only more complex and riskier over time.
Who is the CRO reporting to?
By and large, according the NC State report, the CRO is formally reporting to the CEO or the President (48%), with a much smaller portion reporting to the Chief Financial Officer (18%), and a near equal percentage of CROs reporting to the Board or Board-level risk committee (20%). Nonprofit numbers closely resemble those of the full sample, but a much lower percentage of CROs at nonprofits report to the Board or Board-level committee.
Chief Risk Officer Responsibilities
What I have come across is that organizations have an executive who has several titles, one of which is “Chief Risk Officer” – whether formally or assumed due to responsibilities. The holding of multiple titles means that the CRO tends to be responsible for more than just “risk management,” with areas like compliance, legal, audit, or insurance also under the purview of the CRO.
Of course, these additional responsibilities divert time, focus, and people away from maturing the practices that will help the organization address threats or seize opportunities to achieving strategic objectives. While it sounds good to combine all of these things under a single person, it may not be the most effective method of using ERM to the benefit of the organization. Why? Because I know that thinking about risk and encouraging others to think about risk is a full-time job!
Also, as results from a survey of my readers last year, “tone-at-the-top” and “leadership” are the biggest challenges to ERM implementation. If the CRO is focused elsewhere, it will be difficult to add the true value that ERM can provide.
The CRO’s wide range of responsibilities coupled with limited financial resources, especially for nonprofits, means many organizations “try to figure it out” for themselves. In a way, I admire the guts and fortitude and persistence it takes to go this route because this is how I started.
However, this “go-it-alone” approach carries some negative consequences with it, including:
- You get tired of ramming into a brick wall (…or at least all the detours and backtracking you have to do).
- It takes much longer to figure out what works and to get valuable results.
- It opens your organization up to risks turning into reality without being prepared.
The decision to develop an ERM process on your own may sound like the right financial decision.
But wouldn’t you prefer your organization to have a solid grasp of its risks so they can be addressed before they become a problem?
While it may save some money in the short run, limited financial resources could be put at risk if a significant hit to your reputation or brand were to come along.
In the end, it’s good to see more so many organizations, especially nonprofits, taking risk management seriously.
Nonprofits are just like any other in that they must attract support for their mission or cause. ERM is one tool these organizations can use to ensure they have the biggest impact possible for the least amount of money.
Has your organization, nonprofit or otherwise, appointed a CRO to lead its ERM and other risk management efforts?
I am interested to learn more about risk management leadership in your organization and elsewhere. Please leave a comment below or join the conversation on LinkedIn.
And if your organization is struggling to make progress with ERM or needs to determine if a CRO is needed, please feel free to reach out to me to discuss your situation today!