New Rules Require ERM Disclosure

The U.S. Securities and Exchange Commission ("SEC") recently proposed rule amendments that may have a profound impact on not only the disclosure of corporate governance practices, but also the enterprise risk management ("ERM") practices at major U.S. corporations.  The rule amendments are available for comment until September 15, 2009 and could be finalized soon thereafter.  Here is a portion of the rule amendment relating specifically to enterprise risk management.

We also are proposing to require additional disclosure in proxy and information statements about the board’s role in the company’s risk management process. Companies face a variety of risks, including credit risk, liquidity risk, and operational risk. Similar to disclosure about the leadership structure of a board, disclosure about the board’s involvement in the risk management process should provide important information to investors about how a company perceives the role of its board and the relationship between the board and senior management in managing the material risks facing the company.

Given the role that risk and the adequacy of risk oversight have played in the recent market crisis, we believe it is important for investors to understand the board’s, or board committee’s role in this area. For example, how does the board implement and manage its risk management function, through the board as a whole or through a committee, such as the audit committee?  Such disclosure might address questions such as whether the persons who oversee risk management report directly to the board as whole, to a committee, such as the audit committee, or to one of the other standing committees of the board; and whether and how the board, or board committee, monitors risk. We believe that this disclosure will provide key insights into how a company’s board perceives and manages a company's risks.

Disclosure such as this will require changes for companies that may not have an effective enterprise risk management program in place.  Wheelhouse Advisors is uniquely qualified to help companies build effective ERM programs that are practical and business-focused.  Visit www.WheelhouseAdvisors.com to learn more.