Introduction

The nature of an organisation is important to the risk management context. However, there is no such thing as a simple, featureless institution, nor do any operate in a vacuum. The nature of each organisation and what surrounds it influences its operation fundamentally.

Understanding the internal environment is crucial for understanding the way in which risk management should be approached. An analysis of the various aspects of an organisation's internal risk environment helps risk managers within an organisation to appreciate what they need to do to carry out their roles effectively. It also helps external analysts to determine the risks that an organisation is taking – even if the organisation itself does not appreciate these risks.

Internal stakeholders

The only internal stakeholders with a principal relationship with an organisation are owner-managers – all other internal stakeholders are agents, acting on behalf of the an organisation's shareholders, customers, clients and so on. Their views of risk form an important aspect of the risk management environment, and they are discussed together with external stakeholders in the next chapter. However, as well as their individual views of risk, the ways in which they interact are an important determinant of the ways in which organisations behave. At the head of a firm, this means the board of directors. This group includes executive directors who have a day-to-day role in managing the firm and who are led by the chief executive, and non-executives who are are responsible for representing the interests of shareholders. The board of directors is led by the chairman.