Q: Are policymakers blurring the line between the role of boards and senior management?
It is possible, particularly in the current heated environment, that some board members can become excessively hands-on.
A: Yes, some proposals run that risk.
While the purpose of policy reforms is not to encourage boards to take over day-to-day management functions, finding the right level of involvement is an art and not a science, and some boards can find it difficult to determine where to draw the line.
In some countries striking this balance can be particularly challenging, especially where management may still be reluctant to accept board oversight, or where public expectation is for directors to be more active. Also, in some countries the pressure on directors may be further heightened as a consequence of the litigation environment.
As a result of these and other factors, it is possible, particularly in the current heated environment, that some board members can become excessively hands-on.
In these circumstances a board could become distracted, focusing on short-term tactical issues rather than the overall strategic direction of the business and its associated risks.
Maintaining a meaningful dialogue with management can help directors stay informed and avoid blurring the line. Auditors can play a role in supporting directors in this interaction with management, including by helping boards ask the right questions.
Q: Why do many companies struggle with enterprise risk management?
A: The concept of "enterprise risk" is, by its very nature, broad and should capture every aspect of a business. This should range from operating risk, strategy and finance, to human resources, insurance, foreign political risk, legal and compliance issues, and much more.
Depending on the size and complexity of a company, assessing and monitoring enterprise-wide risk can be very difficult to implement and maintain. Among other things, companies struggle to determine the right level of enterprise risk to assess and monitor, for example, at the business unit or corporate level or both.
In addition, boards wrestle with whether the company’s enterprise risk management should be overseen by the entire board, by the audit committee or by another board committee.
While these challenges are not new, expectations on board members to have a consolidated, enterprise-wide view are greater than ever. Therefore, directors need to be sure that their companies’ risk management frameworks enable the board to understand each line of business, its volatility, and the environment in which it operates.
Q: Would investors benefit from a single, global model for corporate governance?
A: Yes. Corporate governance frameworks are built on similar global principles.
The corporate governance principles of the Organization for Economic Cooperation and Development have become the foundation for a uniform approach to corporate governance around the world.
However, specific governance frameworks vary appropriately from one country to the next and can present challenges to multinational companies.
This is largely because they are embedded locally within the legal/regulatory regime and cultural environment and give varying levels of rights to shareholders, boards, and management.
At the same time, we believe there is value to investors — who increasingly invest in multiple jurisdictions — in understanding these differences. This can be achieved in part through disclosures that explain the reasoning for a company’s corporate governance structure.
