Nearly all boards are reassessing their risk-oversight duties and abilities in light of the recent failure by some on Wall Street to adequately monitor risk. Some boards may find the need to boost their collective abilities in this area by adding new directors with risk backgrounds.
Finding talented and qualified candidates can be a daunting challenge, says Robert Hallagan, vice chairman and managing director of board leadership services at Korn/Ferry International. Hallagan points out that while demand is high for boardcaliber individuals with risk-monitoring experience, there are other factors at work.
The current economy prevents qualified CEOs and directors from dividing their time while facing increased liability. Many experienced CEO candidates are stepping off boards or have stopped joining others. “I can’t imagine a CEO asking permission to go on a new board right now,” says Hallagan.
Finding the right person is only the first step, adds Hallagan. “Boards need to make sure a portion of their agenda is dedicated to the risk discussion,” he says. “There’s no sense of adding someone who has this type of expertise to the board and not have the time set aside on the agenda every quarter.” Asking more questions and prompting management to follow through with answers is imperative to successful risk oversight, he says.
“There is no general prescription, but clearly, boards need to be more attuned to the risks that the company faces,” says Martin Lipton, partner at Wachtell, Lipton, Rosen & Katz. “Directors themselves need to have the background and information necessary to evaluate what they’re being presented with.”
Lipton adds that the board should delegate a specialized committee devoted to risk, conduct periodic tutorials with management or outside experts with respect to risk, and thoroughly review the company’s risk-management system on a regular basis. Lipton maintains such simple actions would benefit a company’s risk conduct immensely.