Top chief financial officers (CFOs) are widening their risk management responsibilities in response to an increasingly volatile environment. Many have relished the challenge and discovered it brings financial opportunities and greater boardroom influence.
A growing range of threats has forced finance leaders to focus more on risk management, including technological disruption, changing market dynamics, geopolitical uncertainty and environmental risks. Coronavirus has increased the pressure further. Almost eight in ten CFOs say the pandemic has triggered more requests for them to manage risk, among other changes to their role, according to research by Accenture.
Mike McLaren, CFO of professional services firm FDM Group, says: “Risk assessment and management have increased dramatically due to COVID-19 and are now a key part of the CFO’s role. The shift to remote working and lockdown restrictions made anticipating financial challenges and managing resources a top priority.”
Most CFOs’ near-term risk focus has been on protecting financial positions and managing digital risks, such as cyberattacks, which have grown more dangerous during the pandemic. But the crisis has also created or accelerated many other threats from supply chain risk to customer behaviour changes and staff mental health issues.
Kelvin Stagg, CFO of recruitment company Page Group, says that CFOs, as owners of the financial business model, are well placed to take more responsibility for overall risk management. “Our functional heads own their risk but, as financial custodian of the company, balancing those risks falls to me,” he says.
Other leading CFOs have also seen the benefits of doing this, using their insights into risk to increase the frequency and scope of collaboration with C-suite partners. CFOs who have transformed their roles in this way are in addition experiencing better growth and profitability.
Risk management drives value
Risk management is not just about prevention and mitigation, but also taking the right calculated risks.
Stagg says one of the biggest risks for Page Group is missing opportunities to grab market share in the post-COVID recovery.
“We started aligning the business for these opportunities in July 2020,” he says. “For example, we found competitors had mistreated staff during the pandemic. We hired 500 of them, many experienced in technology recruiting, which was another opportunity due to the demand for cloud engineers to support remote working.”
Stagg has introduced a risk management matrix to Page Group, which enables him to spot such risks and opportunities quickly. The matrix plots risk tolerance bands in core areas. It shows where the company’s current risk level lies in each, according to a range of evolving metrics, compared to 12 months ago.
Many CFOs have relished the challenges brought by the pandemic, seeing it as an opportunity to test and bolster the strength of their risk management plans.
Elodie Brian, CFO of UK public transport provider Go-Ahead Group, says: “We are navigating unprecedented levels of uncertainty, testing our agility more than ever. In response, risk management has become more dynamic and real time. We have moved from business forecasts to dynamic scenario planning and fostered more collaboration between teams to support faster decision-making.”
This helps the company anticipate long-term risks too, such as permanent changes to customer behaviour, for example around the daily commute and an accelerating green agenda.
Focus on risk can also drive value in other parts of the company. James Ireland, CFO of financial services provider Sanne Group, says: “Greater emphasis on risk management in the CFO’s role has allowed us to invest more in this area, which drives value.
“The key is to focus not simply on mitigation, but on using outputs of risk management activities to improve and refine business processes and strategy. This betters understanding of resource allocation, which strengthens our business and drives efficiency and value for stakeholders.”
Exciting challenges
Mauricio Ortiz, CFO of Chilean mining company Antofagasta, says: “Overseeing and implementing risk management strategy is exciting and central to my role, even more so in volatile environments such as in 2020, and transformations such as adopting new technologies or responding to climate change.
“It was pleasing to see our risk management programme was robust as the pandemic tested it across operational, market, logistic and social scenarios.”
The firm’s main long-term risk – climate change – is also starting to emerge, says Ortiz, for example with drought and heavy rains in Chile. The firm is responding by adapting operations to harsher climate conditions and developing clear policies, and reporting and communication strategies around climate change.
McLaren says board diversity is a critical element of good risk management as it helps raise and balance awareness of more risks by avoiding groupthink. “FDM’s diverse board has over 500 years of diverse experience,” he says. “Also, our internal and external auditors have worked with the group to understand the business’s risk profile.”
Mark Satchel, CFO at wealth manager Quilter, says the most effective mitigation strategy is to have a strong culture of risk-informed decision-making in finance and across the group.
“This includes linking risk management to performance, development, and remuneration and reward schemes,” he says. “An environment that encourages people to embrace risk management, and speak up where needed, is critical to achieving strategic priorities.
“If the past year has taught us anything, it is that businesses need to be prepared to make rapid responses to disruptions. This brings commercial advantages and helps build a more resilient business.”
