Sound Advice About Corporate Governance

Companies looking to strengthen their corporate governance practices typically seek legal counsel to ensure the methods used will stand up against potential challenges from plaintiff attorneys and regulators.  Terry M. Schpok, a leading corporate governance attorney, was interviewed this week about the advice he is providing boards of directors during the current financial crisis.  Here is what he had to say about risk management.

A number of surveys have recently ranked risk management as one of the top concerns of a board. The cliché "desperate times breed desperate measures" has particular relevance today. Many boards are focusing on ensuring that management does not take desperate measures that may ultimately be challenged as improper, illegal, or exceptionally risky. The board should assure itself that the company is dedicated to enterprise risk management, meaning a top-down, holistic approach to risk management, including an assessment of operational, financial, strategic, compliance, and reputational risk. This approach eschews looking at each category independently in favor of assessing the company's overall risk.

Because the current financial crisis is generally attributed to poor risk management, boards should consider whether they have the ability to effectively monitor risk management. They should assure that the company has an education program that provides directors with a good understanding of the company's business and the major risks it faces. Depending on the nature of the risk and, particularly, new risks, a company may need to consider changing or adding board members with expertise in particular areas of concern. There also should be an oversight structure within the board to assure that regular periodic reports from those involved in the risk management function are provided to the board.

The entire board should remain engaged in the risk management process and be kept informed by any board committee that is reviewing details of the process on an ongoing basis. Finally, directors also need to be sure that they are getting information that they need to understand the company's risks as well as management's assessment of those risks. They need to be sure that management is properly assessing risks. They should review current risk management practices with the company. The board should also know what the company is doing to respond to and assess counterparty risk that may be posed to the company by lenders, insurers, suppliers, customers or other parties to business relationships the company.

This is sound advice from a leading expert in the field of corporate governance.  Wheelhouse Advisors is prepared to help companies implement the practices he suggests.  To learn more, visit www.WheelhouseAdvisors.com.