Combining various Enterprise Risk Management lessons with the concept of an Integrated Trade Compliance Strategy, we suggest five core principles for boards to consider when addressing the increased demands of globalization: Awareness; Alignment; Accountability; Assessment; and Adaptability.
Asking the right questions to arrive at the correct answers involves understanding what the board believes it knows about global risk, but even more importantly, what it does NOT know.
Some basic questions to consider should include:
- Which factors will be included?
- How will various risks be graded and compared to risk appetite?
- What preventative measures are in place to avoid a breach of risk appetite?
- How will risks be mapped to strategic objectives?
- What forward-looking “key risk indicators” will be most useful in decision-making?
The foundation of risk awareness is a clear articulation of the organization’s risk appetite generally, and more specifically in the context of this paper, its risk tolerance with regards to global trade and expansion.
The board of directors ultimately bears responsibility for global risks undertaken by the organization, whether it is aware of the risks or not. Accordingly, the board must take a leadership role in overseeing – although not actually managing – the various risk factors involved.
As indicated by Deloitte in its Risk Intelligent Governance guidebook, the board “should establish and reinforce executive accountability for risk management.” This can be accomplished by expecting full disclosure by management of the risks associated with each aspect of the strategy, or by means of a formal evaluation process in this regard for specific executives.
Although the highest ranking executive is usually appointed to be the “quarterback” responsible for managing the practical elements of risk management within an organization, as the analogy would suggest, in fact, a team effort is required to make things work effectively.
The salient point is that every division or department within an organization should be responsible under the leadership of the risk management “quarterback” for the glboal trade risks that arise out of the activities they directly oversee.
While the foregoing elements of Awareness, Accountability, and Alignment together create a solid foundation for an effective global trade risk management strategy, another vital principle must be added to the mix in order to prevent complacency from taking hold.
Complacency, the enemy of vigilance, often sets in not through deliberate effort, but because of a genuine belief that all is well and as it should be. “We have this all figured out and rely on the system in place to identify and mitigate risks in our business” is an expression of conceit one can easily imagine having been confidently made by corporate executives immediately prior to the occurrence of any number of unforeseen calamities.
To avoid being lulled into complacency and a false sense of security, constant assessment and intelligent probing of the status quo by the board will ensure that the “risk intelligent” organization is going “beyond compliance”. It is imperative that the board is also properly exercising the due diligence demanded of it with respect to exactly how the organization’s strategic plan is being implemented, on both a short and long-term basis.
As companies engaged in international trade aggressively pursue new global markets and innovative supply chain options, the need to respond intelligently to emerging risks presented to the organization is paramount. Each new region and set of players involved present unique challenges and opportunities that need to be fully unpacked and understood prior to critical decisions or financial commitments being made.
Boards should challenge management to consider all of the relevant stakeholders involved as it develops the organization’s global expansion plan. Companies need to familiarize themselves with the competitive landscape, be prepared to adjust their marketing techniques as required, and possibly even recalibrate their risk-return equation in order to adapt to the specific needs of the target market.
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