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CFOs aren't the only ones with a lot on their minds. A new study looks at board members' top concerns and their impressions of their management teams.
Kate O'Sullivan, CFO.com | US
May 28, 2010
Ever wonder what your board members are talking about when you're not in the room? While strategies for dealing with the recession and recovery have topped most board agendas recently, a new study of more than 100 board members conducted by the accounting and business advisory firm Eisner LLP identified other key areas of concern. "As the economy is starting to turn, we wanted to find out what boards are thinking about besides financial risk," says Steven Kreit, a partner at Eisner and co-author of the study.
Respondents, half of whom identified themselves as audit-committee members, called regulatory compliance the most important area of risk management, with nearly two-thirds of board members saying they are most worried about keeping up with new regulations such as those from the Securities and Exchange Commission and the Financial Accounting Standards Board (see table below). Kreit cites the new proxy rules issued by the SEC as a hot topic — perhaps in part because the rules require public companies to disclose more information about board members' qualifications.
Not surprisingly given the wave of corporate reputational disasters in the news lately, reputational risk ranked as directors' next concern, with 54% of respondents calling it a key risk. "Boards are concerned about their companies' reputations, but also their own reputations," says Kreit. "More and more you see that when something happens at a company, people are saying, 'Where was the board?'" Information technology risk, product risk, and risk due to fraud rounded out the list of most-critical risk-management areas.
Directors also weighed in on the strategic topics they discuss most frequently. Board meetings are covering a lot of territory, including the economic recovery, health-care reform, the environment, mergers and acquisitions, and global and competitive issues. Seventeen percent of board members said financial topics come up most frequently, a finding Kreit says has been backed up by his experience with clients. "When I started my career and first started sitting in on board meetings, directors weren't as concerned with the accounting rules and how the rules would affect their companies," he says. "There wasn't as much interest in digging into the numbers more closely. Now, there are a lot more questions for the auditor and a lot more questions for the CFO."
Eisner also asked board members about their management teams' knowledge of a variety of financial topics, and found them surprisingly lacking in confidence. Just 26% of directors said they thought their executive management team had a solid understanding of how to begin implementing international financial reporting standards, and only 34% thought executives had a firm grasp of how to create financial models to provide the company with strategic direction. One can only assume they weren't talking about their CFOs.