When Discussing Risk, Are Boards Well Informed?
October 1, 2010 Leave a comment
Now that the economic outlook and regulatory uncertainties are beginning to stabilize, companies and their boards of directors are exiting crisis management mode and realizing the need for strong enterprise risk management programs to succeed going forward. However, most board members in the U.S. still do not have a very good understanding of the enterprise risk management practices in their own companies.
A recent survey sponsored by the AICPA and the CIMA and conducted by North Carolina State University demonstrates this fact. According to the survey, only 39% of U.S. companies indicated that top risk exposures facing the organization are formally discussed when the board of directors discusses the organization’s strategic plan. That’s compared with over 60% of global competitors who are discussing the top risk exposures.
There may be several reasons for this lack of risk discussion in the boardroom. First, the board members may simply be avoiding the risk discussion by placing implicit trust in senior management. The board members may also lack the interest and/or the requisite experience to engage senior management in a healthy debate. However, most likely the company is not in a position to have a risk discussion because they lack the supporting enterprise risk management program to provide a clear articulation of the company’s risk profile. So, the board of directors and senior management are left to review the strategic plan in a vacuum.
Most of these companies are reluctant to invest in an enterprise risk management program because they fear the onslaught of bureaucratic processes akin to the very early days of Sarbanes-Oxley compliance. To be truly successful at providing the right risk information, the program should be highly practical and business-focused rather than a grandiose compliance exercise. It also should be enabled through an intuitive, integrated business process and technology platform such as OpenPages’ Enterprise Risk Management solution set.
For board members who are interested in determining whether they are headed in the right direction when it comes to risk, Wheelhouse Advisors has developed a helpful roadmap called The ERM Compass™. The ERM Compass™ is a simple, straightforward guide that will provide board members with valuable questions and insight to drive effective boardroom risk discussions. If you are interested in learning more, send an email inquiry to NavigateSuccessfully@WheelhouseAdvisors.com.