excerpted from Corporate Board Member and PricewaterhouseCoopers' Thought Leadership piece, What Directors Think
For years, corporate directors have been asked to raise the bar on risk oversight. Once considered the territory of internal auditors or general counsel, setting policies on the oversight of risk for the entire enterprise is now widely accepted as the purview and responsibility of the full board. If there is one lesson learned in recent years, it is that unknown or underestimated risks can bring a company to its knees.
The current economic situation and the scrutiny on board responsibility has brought risk analysis into razor-sharp focus. Directors, in fact, say the number one thing that keeps them up at night are “unknown risks” (Figure 7), and aside from profitability and shareholder value, they point to risk management as the primary area to which they should pay the most attention (Figure 8).
Each year, directors have noted their desire to increase the amount of time spent on risk management, and this year is no exception. Sixty-six percent of board members affirm they would like to spend more time and focus on risk management compared to the past, a number that is up sharply from just one year ago, when only 34% said they wanted to increase focus on risk management. Another 34% this year indicated their focus on risk management would remain the same.
Accomplishing the task
The road to managing risk has unquestionably gotten bumpier in the last 12 months. Out of a list of several functions performed by the board, ensuring the company’s risk appetite is appropriate and ensuring the company’s strategy is appropriate tied as the second most difficult tasks (Figure 9). Third in line for difficulty is serving on the audit committee, say board members, a function that obviously entails a great deal of the board’s overall risk management duties.
And how do directors rate themselves at accomplishing good risk management? Our results show directors are mostly confident they are doing a good job, though there is room for improvement, especially when compared to other functions. When ranking the relative effectiveness of a list of board duties, directors rated their ability to monitor a risk management plan to mitigate corporate exposures sixth out of a list of seven items (Figure 10), with 50% saying they are effective. But when the survey focused more narrowly on directors’ assessments of their risk management objectives, 88% of directors affirmed they adequately meet their responsibilities for monitoring the company’s multitude of risks (Figure 11).
Directors may be feeling relatively secure they are making good risk management decisions because they are receiving appropriate resources to help them with this task. More than eight out of 10 directors say they receive adequate information on risk—including 45% who say that information has shown improvement over what was available in the past. And while 17% say the information they currently receive is not adequate, most of those directors indicated management is working to address that deficiency.
Continue reading Managing Corporate Risk.
Topic tags: corporate goverance, risk managment, What Directors Think