Archive for August, 2009

The SEC want to hear from you: The Board’s Role in Setting the Agenda for Taking Risk

Time for a reality check: Does your board leadership measure up to these proposed SEC changes? How are you letting your investors know how you manage risk?

The SEC has an opinion that is clearly stated: Companies today face ever-increasing challenges from the business and social environments in which they operate. As recent market events have demonstrated, the capacity to assess risk and respond to complex financial and operational challenges can be important attributes for directors of public companies.

The SEC is in comment phase on PROXY DISCLOSURE AND SOLICITATION ENHANCEMENTS .

This is being proposed to address “The turmoil in the markets during the past 18 months has reinforced the importance of enhancing transparency, especially with regard to activities that materially contribute to a company’s risk profile.

The proposal starts with compensation risk:

A. Your board’s look at executive pay for positions that are reported in the Compensation Discussion and Analysis. Has the final decision been vetted for how and if it creates incentives for risk taking ?

Then on to board leadership risk:

B. Enhanced Director and Nominee Disclosure
The particular experience, qualifications, attributes or skills that qualify that person to serve as a director of the company as of the time that a filing containing this disclosure is made with the Commission, and as a member of any committee that the person serves on or is chosen to serve on (if known), in light of the company’s business and structure.
And now my favorite:

C. New Disclosure about Company Leadership Structure and the Board’s Role in the Risk Management Process
Proposal is 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.

My new venture, “Risk for Good” is being designed to help lead directors and chairmen ensure that they are setting the boardroom agenda for risk oversight. I’ll be sharing more details in the coming months. Thanks for reading this and stay tuned.

http://www.sec.gov/rules/proposed/2009/33-9052.pdf

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