Directors Have Limited Guidance On Risk Oversight Of Boards

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Nov. 20, 2009

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Directors are generally aware of their fiduciary duties and know that an organization needs a comprehensive and holistic approach to risk, but there is still limited guidance available on the nature and extent of their oversight function, according to a report issued today by The Conference Board.

“Outside of the financial sector, risk management as a coherent enterprise-wide initiative is a relatively recent topic of discussion among business leaders,”says Mark S. Bergman, co-head of the capital markets and securities group at Paul, Weiss, Rifkind, Wharton & Garrison LLP, and author of the report for The Conference Board.

The report is the first issue of

Director Notes

, a new series of online publications for members of The Conference Board on the oversight role of the board of directors in risk management.

“This report inaugurates a new series of publications designed by The Conference Board to provide practical guidance to the boards of directors of its member companies,”says Matteo Tonello, associate director, Corporate Governance at The Conference Board.

The fallout from the financial crisis is creating greater demands on boards of directors and senior executives to strengthen corporate risk management practices, and this trend is no longer confined to banks and other financial institutions. The Conference Board report highlights a number of considerations for board members as they approach this increasingly important area of responsibility and assess their companies’ ability to adequately mitigate their exposure to uncertainties.

The report outlines regulatory developments as well as emerging corporate practices. In particular, it recommends greater scrutiny of the quality of information that management provides to the board, and the validity of the risk evaluation models it adopts.

The report states that a board’s responsibility is to ensure that senior management establishes risk management processes that are effective, tailored to specific types of uncertainties, and consistent with the company’s appetite for risk.

As part of its oversight function, the board should:

• Assess the quality of the information it is receiving from senior executives.
• Understand the company's business and the risks to the company.
• Assess how management evaluates risks.
• Assess the quality of risk management procedures.
• Consider feedback from employees implementing the risk management program.

This series will cover a variety of topics under the auspices of The Conference Board Directors’ Institute. Through direct collaborations with serving board members of leading public companies, the Directors’ Institute addresses the challenges facing corporate leaders in a rapidly evolving economic and regulatory environment.

ABOUT THE CONFERENCE BOARD

The Conference Board is a global, independent business membership and research association working in the public interest.Our mission is unique: To provide the world’s leading organizations with the practical knowledge they need to improve their performance and better serve society. The Conference Board is a non-advocacy, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States.www.conference-board.org

The Governance Center at The Conference Board brings together senior executives from leading world-class organizations and institutional investors in a non-adversarial setting to debate and develop innovative corporate governance practices.

Source:

The Role of the Board in Risk Oversight: Adapting to Regulatory Developments and Emerging Practices

DN-001-09, The Conference Board

For further information contact:

Frank Tortorici
(1) 212 339 0231

f.tortorici@conference-board.org

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