from January/February 2009
by Julie Connelly
Is a separate risk committee about to join the Big Three—audit, compensation, and governance—on corporate boards? Probably not. When asked if they thought their board should form a special committee to provide oversight of potential risks that pose a major threat to the company, 80% of those attending Corporate Board Member’s annual Boardroom Summit in October said no. “It’s not necessary to have a risk committee, because risk is the responsibility of the entire board,” argues Betsy Atkins, chair of the governance committee at Chico’s FAS, a retailer. Some boards disagree (see right for examples).
Boards that do set up risk committees tend to be in the financial industry, where risk is the business, according to Matteo Tonello, senior research associate at the Conference Board’s Governance Center— but even then only about 30% of those companies have them, he says. And not all risk committees have earned their fees. The committees didn’t prevent many institutions from overindulging in credit default swaps or collateralized debt obligations. Wachovia was generally held to have an excellent risk committee until 2008, when the North Carolina bank started hemorrhaging under a mountain of subprime mortgage debt and ended up as the shotgun bride of Wells Fargo.
According to the Conference Board, 65% of Fortune 100 boards have given the audit committee the responsibility for risk oversight. “We decided to make risk an integral part of the audit committee after Enron,” says Citigroup’s audit and risk-management committee chairman, John Deutch, a chemistry professor at MIT (and former head of the CIA). “As a board, we realized that we couldn’t separate risk from audit and do our job. How can you account for assets and set up reserves without assessing risk?”
Others believe risk is really the responsibility of every committee—and should be spelled out in every committee’s charter.
Related Article: Risk: Every Board's Biggest Challenge
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By jacqi fifield
Excellent information but would have liked more detail and information. |