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Risk Oversight: What Every Director Should KnowPremium

Ormazábal, Gaizka

 

Publisher: IESE

Original document: Risk Oversight: What Every Director Should Know

Year: 2016

Language: English

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The public and political perception that excessive risk-taking was to blame for the global financial crisis has led to a number of legislative and regulatory actions concerning the role of the board in risk oversight. This article discusses the main factors driving the pressure on boards to oversee corporate risk and the potential consequences of this emphasis on risk oversight. The author describes how companies are responding to the higher demand for board involvement in risk management -- particularly as what began as a distinctly U.S. trend is crossing the Atlantic and being felt in European boardrooms.

Tools and Frameworks:
> "The Cost of Serving on Risky Boards" summarizes the author's findings that institutional changes related to risk oversight in the years since the global financial crisis have significantly increased the cost of serving on boards, with directors more likely to resign from their riskiest board positions.

Examples Cited:
California Public Employees' Retirement System, CalPERS, New York City Pension Funds, Duke Energy, Japanese earthquake and tsunami, Lehman Brothers, BP Deepwater Horizon, Volkswagen, Chipotle, PayPal, Dodd-Frank Wall Street Reform and Consumer Protection Act, U.S. Securities and Exchange Commission, New York Stock Exchange

Research Basis:
Based on a research project by the author, tracking board memberships of U.S. public firms between 2005 and 2013.

About the Author:
Gaizka Ormazabal is an assistant professor of Accounting and Control at IESE.

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