This report recommends 10 principles to assist boards in strengthening their oversight of the company’s risk management.Īccording to the report, “The Commission believes that principles provide a foundation that boards can use to build a more comprehensive risk oversight system tailored to the specific needs of their respective companies.” We agree. To that end, in 2009, the National Association of Corporate Directors (NACD) published its Report of the NACD Blue Ribbon Commission – Risk Governance: Balancing Risk and Reward. For example, the Securities and Exchange Commission in the United States requires that proxy disclosures shine the spotlight on the board’s role in overseeing the company’s risk management process, directors’ qualifications for understanding the entity’s risks and evaluation of the entity’s various compensation arrangements by the board’s compensation committee to ensure they are not encouraging the undertaking of excessive, unacceptable risks.Īs a result, the risk oversight playbook has evolved over recent years, during which time many boards formulated their respective approaches to risk oversight and organized themselves accordingly. In addition, since the financial crisis, regulators have taken an active interest in board risk oversight. stock exchanges across all industries took a hard look at their membership, how they operated and whether their operations and the information to which they have access are conducive to effective risk oversight.
In the aftermath of the global financial meltdown and credit crunch, risk oversight became an imperative for boards of public companies, particularly in the United States. While risk oversight has always been an important part of the board’s agenda, the disruptive financial crisis of 2007-2008 taught everyone a lesson about just how important it is.
Jim DeLoach provides an analysis of each of the 10 principles, demystifying the process of evaluating board risk oversight. The National Association of Corporate Directors published an authoritative guide in 2009 on risk governance, and the principles outlined therein are as relevant today as ever.
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