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This report contains some excellent information on a variety of risk and governance issues. What caught my eye was the section halfway down, under the heading: “Redesigning the Board.”

Here are a few quotes, but you should read the whole section (and probably more):

  • “The governing board is potentially one of the most pivotal places for the introduction of risk management practices.”
  • “…the boardroom could serve as a barricade against the next crisis — if properly redesigned. The board’s traditional focus has been on “compliance, control and compensation,” fulfilling the oversight function mandated by both government regulators and listing requirements. But that is no longer sufficient, suggested several panel members. Directors should also be engaged in “company strategy, talent development and risk management.” It is a matter of not only “feeding the beast” — providing investors with expected quarterly returns — but also “building the business” — advising executives on strategic direction and appropriate risk.” 
  • “…directors should bring not just oversight capabilities to the boardroom. They should also be ready to challenge management practices, exercise independent judgment and resist when executive actions pose excessive risk.”

This next quote was interesting: “smaller boards make better forums. ‘Seven to eight people can debate strategy, the way a board of 15 cannot.’”

The report continues with this:

  • “If well redesigned, company boards can thus help their companies in “a race to the top” — building long-term value and avoiding excessive short-term risks — rather than permitting a “race to the bottom” that had driven some companies into the cauldron of the crisis.”

I really liked these next two:

  • “Working in extremely high stakes environments requires taking calculated risks, the antithesis of recklessness that had driven the sub-prime mortgage lending that sparked the financial crisis. And when critical decision points are reached — going for a dangerous summit, landing a stricken aircraft — a total focus on the task at hand and the ability to draw on a lifetime of experience are vital for surmounting the perils of the moment.”
  • ·         “Complacency will kill you, good governance is essential, and learn from others’ mistakes to avoid your own.”

I would appreciate hearing your views on this, and other nuggets of interest in the report.

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  1. André Stauffer
    Good corporate governance is high on the agenda these days, and rightly so.
    But let me add my pinch of salt to the Davos propositions:
    It is quite interesting to read government agencies representatives talk about the financial crisis, while they are still giving the economy the very medicine that make it critically ill 2 years ago. Where is the central banks (read Fed) governance, and who would qualify for such a task.
    On the corporate front, it is beyond any doubt that more board involvement in areas such as strategy and risk management is required, which calls for better board quality. Focus is required. Contrast this with the practice in various countries to have politicians and businessmen sit in innumerable boardrooms. Shareholders have to get involved.
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