TheCorporateCounsel.net

February 16, 2023

Risk & Crisis Management: Directors Need to “Roll Up Their Sleeves”

High-profile Caremark cases and SEC enforcement actions have focused attention on the ever-higher expectations placed on boards when it comes to risk oversight.  This article from Nasdaq’s Center for Board Excellence says that when it comes to risk oversight and crisis management, stakeholders expect directors to roll up their sleeves:

Given the rapidity at which information and news travel today, boards need to be prepared to act when setbacks happen, and crisis management cannot be delegated to executive teams. Shareholders expect the board to actively help navigate all phases of a crisis, from the initial “hair-on-fire” through the post-mortem. One of the most important things for boards to do is to engage, as shareholders and stakeholders expect the board to ensure that appropriate processes are in place to successfully manage a crisis.

The board’s role is to ensure the company has the right processes and people in place to effectively identify and evaluate risk, in addition to approving the risk appetite of the firm on behalf of stakeholders. Developing the risk appetite is critical as it frames how the board will react to any risk-related setback. Boards may consider collaborating with management to establish a risk appetite statement, approaching risk from a macro level. While identifying every single risk is unrealistic, this practice promotes discipline in setting a foundation for enterprise risk

The article says that boards need to understand how information flows through their organization in order to better anticipate unforeseen events. That review should incorporate an assessment of whether information from all viewpoints is welcome, or if the company’s culture is to disregard points of view that may potentially conflict with the general consensus of top management.

John Jenkins