Survey: Boards Are Often Blind to Major Risks

In PwC poll of directors of financial-services firms, 65 percent say proper tools are lacking.
Stephen TaubOctober 21, 2008

By a wide majority, directors of financial services firms believe that they had little chance of spotting the kinds of problems at their respective firms that plunged the world into a global financial meltdown.

In a recent PricewaterhouseCoopers survey of more than 300 financial-company board members, two-thirds of whom sit on the boards’ audit committees, 65 percent said that they feel that corporate boards lack the tools and transparency to properly assess risks and exposure. What’s more, 88 percent said that the scope of risk management for financial institutions does not adequately account for their exposure to off-balance sheet entities.

And 77 percent said that existing valuation tools are not robust enough.

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Of course, virtually all the board members surveyed were in agreement that changes are needed in the future. For example, 96 percent said they think that financial institutions that retain risks to off-balance sheet entities should publicly disclose aggregate information on a regular and timely basis, including the quantity and sensitivity to credit, market and liquidity risks and any changes to those risk exposures over time.

The survey participants were also asked about their views on the controversial mark-to-market accounting. And 65 percent agreed that fair valuation creates volatility in the markets. Still, fully 83 percent disagreed with the statement that mark-to-market accounting is to blame for the current credit crisis.

The survey was taken between Sept. 22 and Oct. 4 and was completed at the 2008 PwC Financial Services Audit Committee Forum, a gathering of financial services audit committee members.

When asked to rank their four top priorities over the next 12 months, audit committee board members ranked them as follows: Enterprise-wide risk management and buy-in from business lines; Systematic risk management across the industry; Transparency and financial reporting, and Internal controls and tightened margin/collateral controls.