A risk appetite statement establishes a common understanding between executive management and the board of directors, regarding desirable risks underlying the execution of the enterprise’s strategy. Every company has an appetite for risk, whether it chooses to acknowledge it explicitly or not.

When defining risk appetite, we suggest companies begin with understanding their historical risk-taking characteristics and then frame their risk appetite in the context of their strategies and business models. In this issue of Board Perspectives: Risk Oversight, we advise what to include when formulating assertions to include in a risk appetite statement.