Marks and Spencer 2016 Annual Report Download - page 50

48
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE
The UK Corporate Governance Code
requires companies to defi ne their risk
appetite in terms of the nature and extent
of the principal risks they are willing to take
in achieving strategic objectives. In real
terms it is an expression of the type and
amount of risk that the company is
prepared to take; by clearly defi ning this
our business benefi ts in a number of ways.
Not only does it promote consistent, risk-
informed decision-making across the
Group that is aligned with our strategic
aims, it also supports robust corporate
governance by setting clear risk-taking
boundaries.
Our approach to risk appetite has evolved
during 2015/16, building on the foundations
put in place last year. Following a review of
the draft statements prepared in 2014/15,
the Board have now agreed a set of Group-
level risk appetite statements that address
key risk areas and specifi c business
operations; they are also designed to
support the business in its management of
a number of principal risks. The statements
articulate the normal risk parameters within
which the Group operates; this is refl ective
of the fact that our business is already
governed by robust policies and
procedures.
Our risk appetite statements cover a wide
range of topics from Clothing & Home
ethical sourcing and food safety and
integrity through to our core values and
behaviours. The size and diverse nature of
our business means that there is no ‘one
size fi ts all’ approach to establishing risk
parameters. Whilst it is important that these
are clearly defi ned, it is also essential that
we foster an environment where innovation
and entrepreneurial activities thrive. At
times there may be merit in operating
outside of agreed risk parameters but
proposed exceptions will need to be
escalated to senior management for
debate and approval before activities
commence, ensuring that appropriate
mitigating controls are in place.
Our work is ongoing. As the business
evolves during 2016/17 we will continue
to assess whether we have the right risk
appetite statements in place, and to
consider additional topics, including
emerging risks. We also plan to incorporate
our work on risk appetite into our existing
Group Risk process to promote consistent
consideration of risk and reward across the
Group.
EXAMPLE RISK APPETITE STATEMENT
Each agreed risk appetite statement is
designed to provide guidance on the
nature and extent of risk that the Group
is prepared to take in achieving its
strategic aims and operational objectives.
For example:
Food safety and integrity – We only
sell food products that meet our safety
and integrity Codes of Practice. This is
managed throughout the product
lifecycle, and assessed via our Food
Safety and Food Integrity audit
programmes.
OUR APPROACH TO RISK APPETITE
We recognise that there is signifi cant
interdependency between our key risks.
This diagram, based on an extract from our
current Group Risk Profi le, highlights how
changes to one risk could impact on those
connected to it. By understanding the
relationship between our key risks if they
were to materialise, we are better placed to
ensure that we are managing them
appropriately and to understand our
broader risk exposure.
The following is an illustrative example
of a potential scenario:
In order to strengthen the performance of
our Clothing and Home business 1, both
in the UK and Internationally 9, we need to
ensure we keep abreast of, and adapt to,
changing consumer behaviours 2. A
critical part of this is ensuring that our
customer proposition is well executed,
including maximising product availability
and the speed of delivery to customers 4,
as well as guaranteeing the resilience of
our online business 10 . We recognise that
business performance is also a ected by
external factors the causes of which are
primarily out of our control. These include
fl uctuations in foreign exchange rates and
the global economy E1 (encompassing
uncertainties conferred by the upcoming
referendum on Britain’s membership of the
European Union E2), along with global
socio-political unrest E3.
We recognise that there is signifi cant
interdependency between our key risks.
This diagram, based on an extract from
our current Group Risk Profi le, highlights
how changes to one risk could impact on
those connected to it. By understanding
the relationship between our key risks if
they were to materialise, we are better
placed to ensure that we are managing
them appropriately and to understand
our broader risk exposure.
The following is an illustrative example
of a potential scenario:
In order to strengthen the performance
of our Clothing & Home business (1), both
in the UK and internationally (10), we need
to ensure we keep abreast of, and adapt
to, changing consumer behaviours (2).
A critical part of this is ensuring that our
customer proposition is well executed,
including maximising product availability
and the speed of delivery to customers
(4), as well as ensuring the resilience of our
online business (11). We recognise that
business performance is also a ected by
external factors, the causes of which are
primarily out of our control. These include
fl uctuations in foreign exchange rates and
the global economy (E1) (encompassing
uncertainties conferred by the upcoming
referendum on Britain’s membership of
the European Union (E2)), along with
global sociopolitical unrest (E3).
See Risk Management on p27-29
RISK INTERDEPENDENCY
ACCOUNTABILITY
RISK IN ACTION CONTINUED
11
M&S.com
business
resilience
E2
Brexit
E3
Sociopolitical
unrest
E1
Foreign
exchange &
global
economy
2
Changing
consumer
behaviours
10
International
1
Clothing &
Home
transformation
4
Clothing &
Home supply
chain and
logistics
network