How Ethics and Compliance Professionals Can Assess and Monitor Leadership’s Risk Appetite

In today’s evolving business landscape, ethics and compliance (E&C) professionals are increasingly expected to move beyond rule-enforcement and become strategic advisors to leadership. A key part of this role is understanding and assessing senior leadership’s risk appetite—the amount and type of risk the organisation is willing to accept in pursuit of its objectives.

But risk appetite is not static. It shifts based on strategic priorities, market dynamics, and major events like mergers, acquisitions, or IPOs. Ethics and compliance leaders must not only assess the current risk appetite but also build mechanisms to monitor and adapt to changes. This blog explores how to do just that, offering actionable guidance and best practices.

Why Understanding Risk Appetite Matters

At its core, risk appetite influences how decisions are made, where resources are allocated, and how ethical boundaries are set. When E&C professionals align their compliance strategies with leadership’s risk appetite, they can:

• Tailor controls to avoid over- or under-regulating
• Prevent misalignment that leads to friction or blind spots
• Identify cultural or behavioural risks before they escalate

According to the Institute of Risk Management (IRM), a clear understanding of risk appetite helps organizations make more consistent decisions and respond effectively to change.

Assessing Leadership’s Risk Appetite

1. Engage in Strategic Dialogue

Risk appetite is often implicit. E&C leaders should initiate structured conversations with executive leadership to draw it out. Key questions to explore:

• What risks are we comfortable taking to achieve our goals?
• What would be considered a “deal-breaker” risk?
• How do we prioritize financial growth vs. reputational protection?
• How do we react when we face ethical grey areas?

These discussions can be integrated into enterprise risk management (ERM) reviews, board updates, or strategic planning sessions.

2. Review Organisational Risk Frameworks

If the organization already has a formal risk appetite statement, review it critically. Is it specific enough to guide behaviour? Is it communicated widely? If not, work with leadership and risk teams to co-develop one that reflects evolving priorities.

Best practice guidance from the COSO Enterprise Risk Management Framework recommends that risk appetite should be “clearly articulated and communicated throughout the organization” to ensure alignment.

3. Observe Behaviour and Culture

Actions speak louder than words. Watch for decisions that indicate leadership’s true appetite for risk. For instance:

• Are corners being cut to meet revenue targets?
• Are compliance issues downplayed in pursuit of speed or innovation?
• Is there a pattern of overlooking “low-severity” violations?

These behaviours often reveal gaps between stated and actual risk tolerance.

Monitoring Changes in Risk Appetite

1. Track Business Milestones

Leadership’s risk appetite tends to shift during major events. Common inflection points include:

• Preparing for an IPO – Organisations tend to become more risk-averse, tightening controls to satisfy regulatory and investor expectations.
• Pursuing an acquisition – Appetite for financial or operational risk may rise, but reputational risk tolerance may narrow.
• Responding to a crisis – Risk appetite may temporarily swing toward caution and transparency.

E&C professionals should maintain a forward-looking view of the business roadmap and proactively engage during planning phases.

2. Use Pulse Checks and Surveys

Short, periodic surveys or “pulse checks” with senior leaders can offer valuable insight into shifting perspectives. Tools like Continual’s compliance engagement platform can help automate and analyse this feedback, providing real-time visibility into leadership sentiment and risk tolerance.

Ask questions such as:

• How confident are you in our current risk controls given our business priorities?
• What risks are you most concerned about in the next 6–12 months?
• Are there any areas where you feel our controls are too restrictive?

3. Monitor KPIs and External Signals

Keep an eye on both internal and external indicators that could suggest a shift in risk appetite:

• Internal: Budget changes, compliance investigation trends, whistleblower reports, shifts in leadership tone or messaging
• External: Regulatory developments, investor scrutiny, public relations events, peer scandals

Combining qualitative insight with data allows E&C leaders to spot trends and flag emerging misalignments early.

Embedding Flexibility into Your Compliance Program

Once risk appetite is understood and monitored, the next step is building agility into your compliance framework. That means:

• Designing scalable controls that can adjust to different risk levels
• Creating scenario-based training that reflects potential dilemmas during periods of change
• Establishing a feedback loop between E&C, leadership, and business units

A flexible program ensures that as leadership’s risk appetite evolves, compliance strategy evolves with it—rather than falling behind.

Final Thoughts

In a world where reputation can be lost in a tweet, ethics and compliance professionals must position themselves as partners in protecting and enabling growth. By deeply understanding and continually reassessing leadership’s risk appetite, E&C leaders can strike the right balance between ambition and integrity.

Tools like Continual help organizations move beyond checkbox compliance by offering real-time insight and adaptable frameworks that evolve with your business. Because in the end, a compliance strategy that’s aligned with leadership’s risk mindset is one that can truly drive ethical success.

‍