The Time for ERM is Now

The Dodd Frank Act of 2010 that was recently signed into law by President Obama will require not only banks but also nonbank financial companies to have a formal risk committee and enterprise wide risk management program. Specifically, the Act has a mandatory provision for public companies with total assets greater than $10 billion to have these risk management practices in place and an option for the Federal Reserve to require public companies with fewer assets to have the same.  Here is an excerpt directly from the new law pertaining to the new risk committee requirement.

RISK COMMITTEE.—A risk committee required by this subsection shall—

(A) be responsible for the oversight of the enterprise wide risk management practices of the nonbank financial company supervised by the Board of Governors or bank holding company described in subsection (a), as applicable;

(B) include such number of independent directors as the Board of Governors may determine appropriate, based on the nature of operations, size of assets, and other appropriate criteria related to the nonbank financial company supervised by the Board of Governors or a bank holding company described in subsection (a), as applicable; and

(C) include at least 1 risk management expert having experience in identifying, assessing, and managing risk exposures of large, complex firms.

These requirements will become effective in one year, so the time is now to begin working on your enterprise risk management practices.  Wheelhouse Advisors is uniquely qualified to help companies establish a practical, business-focused risk management program that is cost-effective.  Visit www.WheelhouseAdvisors.com to learn more.

Winds of Corporate Governance Change Are Blowing

Yesterday, the U.S. Government announced major pay reductions for executives at companies recently aided by taxpayer funded capital infusions.  In addition, the Wall Street Journal reported that these same companies will be forced to make some significant changes in their governance structure and risk management practices.  Here is what one prominent corporate governance expert had to say about the demands.

The government's move "is a seismic shift,'' said Espen Eckbo, director of the Center for Corporate Governance at Dartmouth College's Tuck School of Business. But the broader impact will be "much more significant from the governance side,'' he added. Mr. Eckbo anticipates increased shareholder pressure on companies without federal bailouts to create board risk committees and split the roles of chairman and CEO. There likely will be more non-binding stockholder resolutions next year calling for such changes, he predicted. In particular, "risk committees are a no brainer.''

As more companies establish board risk committees, Enterprise Risk Management ("ERM") programs will come under greater scrutiny and need to be more robust.  Wheelhouse Advisors can help strengthen your ERM program.  Visit www.WheelhouseAdvisors.com to learn more.