boardroomAmy Hutchens, general counsel and vice president of compliance and ethics services at Watermark Risk Management International is a contributing writer for this website bringing our reader’s attention to the importance of building strong relationships between organizational ethics and compliance objectives as related to Board Room driven discussions, decisions, policies and strategies. Amy often points out relevant and recent developing stories, articles or reports related to the building of that relationship — Check out Compliance Chiefs and Boards: Keys to Building Effective Relationships.

This posting is all about some of those developing dynamics and how they might relate to your own organization’s board room activities regarding compliance and risk management.

How does your organization deal with the relationship between ethics, compliance and promoting the financial best interests of shareholders?  How much does your company address the potential need to culturally change from “command-and-control” to the promotion of more “self-governance”?  Does your management act more like “power over their people” than supporting more “power through their people”?  How does your Board of Directors benchmark itself against what other boards are doing in today’s global business environment when it comes to the areas of compliance and ethics?  How about other risk management related board decisions?

It is our staff’s opinion that many of our readers can benefit from benchmarking this kind of information as their organizations also face the challenge of balancing the best interests of investors, ethics and compliance in everyday business decisions while trying to answer some of the questions stated above…..

To help that process, our staff points to a recent board room survey report, brought to our attention by Amy, sponsored by the accounting firm EisnerAmper, and entitled Concerns about Risks Confronting Boards”.

This report’s co-authors Michael Breit, CPA and Steven Kreit, CPA, bring home an important point stemming from the results of that survey and facing all board members confronted with the daunting task of making the “correct” risk management decisions for their organizations, when they state “….it is paramount that boards and executives remain attentive to and ahead of the curve on risk management related challenges that exist not only in operations and reporting, but in the digital domain.

This survey was conducted during January and February 2013 and measures the opinions of 235 directors serving on the boards of publicly-traded, private, not-for-profit and private equity-owned companies across a variety of industries.

Some of the key observations and insights gained from this report:

  1. Public perception or reputational risk is the most significant concern for boards today.
  2. While internal audit remains one of the best tools for identifying risk, it is not clear how not-for-profit organizations effectively identify risk.
  3. Close to 50% of publicly held companies indicated the use of fully implemented enterprise risk management (ERM) programs.
  4. An overwhelming (87%) of board members felt it was important to not just discuss strategic direction, but invest in it.
  5. With new cyber threats, new regulations and an increasingly dynamic environment, boards expect top company management to expand their expertise.
  6. All companies could stand to improve their understanding of cyber security and how to better align business goals to IT.
  7. Women and diversity on boards remains an ongoing topic for discussion, but, recent research shows that firms with at least one woman director are significantly less likely to restate quarterly or annual earnings than are companies with an all-male slate of directors.

One of the more important risk management related questions in the survey and its resultant findings could be:

ASIDE FROM FINANCIAL RISK, WHICH OF THE FOLLOWING AREAS OF RISK MANAGEMENT ARE MOST IMPORTANT TO YOUR BOARDS?

Public Company

Private Company

Not-For-Profit

Private Equity-Owned

Reputational Risk

66%

70%

77%

65%

Regulatory Compliance Risk

61%

54%

58%

60%

Cyber Security / IT Risk

64%

57%

55%

55%

Crisis Management / Disaster Recovery

43%

36%

38%

30%

Product Risk

34%

45%

25%

35%

Risk Due to Fraud

25%

29%

32%

15%

Tax Strategies

21%

17%

12%

10%

Outsourcing Risk

16%

17%

12%

20%

Related articles on ethics and compliance:

“How to Make Compliance a Team Effort”

“Andrew Fastow: The Disconnect Between Rules and Principles”

Read More about the Board Survey

What is Your Company’s Ethics Quotient? 

If applicable, please pass this information along to the risk management team members in your organization.

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