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Why is risk management important?

The link between risk and effective governance

For co-operative organisations, the Code of Governance (at Section 5, Principle C) states that

“The board is responsible for and should establish procedures to manage risk, oversee the internal control framework, and (with input from the executive leadership if applicable) identify the nature and extent of the principal risks the co-operative is willing to take in order to achieve its long-term strategic objectives and success in accordance with the ICA Values and Principles.”

Risk management and corporate governance are closely related. Effective risk management supports the internal controls of an organisation and this ensures it can achieve its objectives. Good governance should ensure the long-term sustainability of an organisation where its activity is safeguarded, or value is generated through the ‘exploitation’ of opportunities.

For co-operative organisations, the Code of Governance (at Section 5, Provision 5) states that:

“The Board should, or the audit and risk committee could be delegated to, carry out a robust assessment of the co-operative’s emerging and principal risks. The board should confirm in the annual report that it has done so and should include information detailing:

•           A description of the principal risks

•           Confirmation of the procedures in place to identify emerging risks

•           An explanation of how risks are being managed and/or mitigated.”

Effective risk management can also support strategy development, helping boards to develop strategies that are appropriate to the risk preferences of its members and wider stakeholders and the opportunities and threats that exist within its current operating environment.

So, good governance should effectively manage, not eliminate, risk. Organisations need to build both resilience and agility in all of their activities, enabling them to adequately respond to change in circumstances or to deal with the consequences of unforeseen events.


This resource has been written by Angela Lomax from David Tolson Partnership, Chair of the Co-operative Governance Expert Reference Panel.