SRA-E Lisbon 2017

Over the last decade the business world has witnessed an increasing use of the term ‘risk appetite’. Considered as a business imperative to ensure successful enterprise risk management, risk appetite has become a popular topic among corporate governance regulators, risk management professionals and senior corporate decision makers. However, research on risk appetite is still at an early stage, and current practitioner-dominated literature often provides inconsistent views with regard to its meaning. Existing risk appetite explanations, i.e. its definitions and analogies, are almost exclusively offered by organisations (e.g. regulators and risk consultancies) promoting the concept, and there appears to be no explanations that come from the conceptualisations of the actual ‘end users’ of risk appetite, i.e. corporate executives and risk managers. Through in-depth interviewing with sixteen corporate executives and risk managers of two multi-national companies, this paper proposes a unified definition of risk appetite that not only captures the key themes of the literature, but also reflects how the ‘end users’ understand the concept. Moreover, this paper introduces a ‘black hole’ analogy of risk appetite (based on the conceptualisations of corporate executives), which provides a novel perspective for academics and practitioners to better understand the rather elusive concept of risk appetite.