In hopes of contributing to the development of corporate governance, the Conference Board Governance Center issued yesterday a report designed to advise directors on their evolving responsibilities in the wake of the credit crisis. The advisory report centers on the necessity of maintaining oversight of risk management and executive compensation in the post-bailout economy.
The report emphasizes the importance of a board maintaining direct oversight on the risk practices of the company, and not simply delegating such responsibility further down the command chain. The report suggests that insufficient risk assessment was directly responsible for the excessively risky mortgage trades that contributed to the downfall of the world economy.
A related point of advice is of course executive compensation and the dangers posed by excessive pay. Besides piquing shareholder ire, the Conference Board report demonstrates that exorbitant pay often accompanies heedless decision-making, so that executives are motivated to take foolish risks, at the expense of shareholder value.
The report, “Overseeing Risk Management and Executive Compensation: Pressure Points for Corporate Directors,” was authored by Matteo Tonello, associate director of corporate governance research at the Conference Board. It is the first in a series of reports designed to advise directors on their new role in the crisis.
“In these difficult times, The Conference Board is renewing its commitment to provide guidance to the boards of directors of its member companies,” said Tonello. “With this series of practical reports and with the recommendations included in this new report, we are drawing upon years of research in corporate governance.”