Airmic 2013: Firms' risk management often opaque

The way many companies report their risk management activity is opaque, lacking in detail and detached from overall corporate strategy, according to risk management association Airmic.

Airmic will team up with the Institute of Chartered Secretaries and Administrators (ICSA) to urge the Financial Reporting Council to tighten up risk reporting when it updates the UK corporate governance code later this year.  

Although companies listed on the London Stock Exchange are required to describe their risk management activities annually, research published jointly by the two organisations reveals a gulf in the quality of risk reporting.

It found that, while firms in the leisure industry had a generally high standard of risk reporting, most of those in sectors such as food and drink were much worse. Chemical and pharmaceuticals and mining and energy were two industries that, although high-risk, did not generally have high reporting standards.

Overall, many companies treated risk management as a standalone activity in their reporting, instead of describing it in the context of the wider corporate strategy.  

Airmic technical director Paul Hopkin said: “If you’re good at risk, then why hide the fact? The impression is that many firms with strong stories to tell see risk reporting as little more than a compliance exercise. Yet the exercise can underpin confidence in the company, whilst the discipline of having to report can help firms to sharpen their practices internally.”

ICSA director of policy Seamus Gillen said: “Stakeholders generally, and shareholders in particular, cannot make a judgement about the quality of a company’s strategy if there is not a strong narrative on the risks to that strategy, and the way in which sound risk management can provide further opportunity. We need to see a more compelling, linked-up narrative.”