Risk Management

Finance Chiefs Should Steer Better Board Reporting, Experts Say

Risk and compliance officers may be too shy about approaching esteemed board members.
Caroline McDonaldSeptember 10, 2012

Prompted by negative public opinion about corporations in recent years — and the assumption that boards may be dropping the ball on corporate oversight — directors are looking to risk and compliance executives to provide deeper knowledge about potential perils their companies face.

At the same time, corporate risk managers may be wary of approaching the board about potentially damaging information, feeling it’s not their place to do so. The takeaway for finance chiefs? Says Peter Gleason, CFO and managing director of the National Association of Corporate Directors: “The information burden will fall on them.”

Indeed, risk and compliance officers can be overly deferential to board members, thinking directors are up to speed on the risks and too busy to listen to an in-depth presentation. That can impede important decision making for board members, says Shanti Atkins, president and chief strategy officer of Navex Global, an ethics and compliance consulting firm.

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“I’ve dealt with general counsels and chief ethics officers who feel like they’re going to insult a board member by suggesting they are not completely well versed on these issues. Just because you sit on the board of a company doesn’t make you an expert in everything the day you sit in that chair,” she adds.

CFOs thus need to make sure that risk and compliance officials step up to the plate and provide deep and meaningful reports on looming hazards to the corporation. Such reports need to contain more than just numeral information, Gleason suggests, and be thorough and analytical enough to aid board members in gauging how much risk the company is willing to assume when it pursues certain activities.

To be sure, “board members need to get short, digestible, and consistent information,” says Atkins. At the same time, “they also need context and benchmarks against prior periods,” she says.

Perhaps as a result, time-consuming presentations that limit the scope of information presented may be giving way to new methods of reporting on risk and compliance issues, according to board experts. Further, some boards are adopting a more open, dialogue-based approach to encourage timid risk managers to come forward.

“Boards are moving toward fewer presentations and reserving more time for dialogue around issues,” Gleason says, adding that, increasingly, PowerPoint presentations are banned, and presentations are briefer to accommodate discussions.

Instead of sitting through long presentations at the meetings themselves, board members now often receive materials a week in advance. They are “expected to come prepared and ready to discuss the issues,” says Gleason.

Andrew Barile, an insurance and reinsurance consultant who sits on two boards, cautions that such strategies can work “only if the board is paying attention and wants to get involved.” What’s more, he says, some directors might be fearful of damaging their reputation by letting on that they aren’t experts in a particular area.

Nonetheless, board members overseeing corporate ethics and compliance programs often need training. “I have talked to so many board members who don’t really understand what their actual duties and responsibilities are,” Atkins notes. “They often don’t understand their personal liability, the various components of an ethics and compliance program, . . . and the key risk areas for their particular business.”

Adding to the difficulties is that some widely used presentation methods just aren’t effective. “A mistake that people close their eyes to is using fear tactics. I’ve seen board reports where slide after slide were warnings about fines and headline-grabbing problems.”

With the corporate-ethics meltdown in the past 10 years, she explains, there’s a widespread public belief that business and political leaders aren’t accountable, she adds, suggesting the belief leads to such threatening board reports. Presenting sophisticated board members with scare tactics over and over, however, does not lead to a meaningful conversation with actionable decisions, says Atkins.