Corporate Directors Forum 2012, Part 8: Risk

These are some relatively quick notes that I’m sharing from the Corporate Directors Forum 2012, held at the University of San Diego, January 22-24, 2012. This post may be a cryptic… incomplete sentences bt hopefully mor intelligible thN txt msgN or Tweets.

Chatham House Rule prevailed, so there is little here in the way of attribution below. Many opinions below are those of panelists. Some were from the audience. Some are just what I’ve heard that I hope is related. Attend next year and you’ll get a more complete picture.


What Should the Board be Considering with Respect to Global Market Uncertainties and Risk?

  • Moderator Christiana Wood, chair, International Corporate Governance Network (ICGN)
  • Robert F. Cullen III, partner/principal, advisory risk services, Ernst & Young LLP
  • Adam Epstein, founding principal, Third Creek Advisors, LLC; director, OCZ Technology Group, Inc.
  • Robert L. Lumpkins, chair, Mosaic Co.; director, Ecolab, Inc.; Airgas Inc.
  • Jay Rembolt, chief financial officer, treasurer and VP of Finance, WD-40 Company

Many small companies are now global. Often, risk management is divided more or less geographically. Risk management (operation, supply disruption, etc.) is viewed locally around the world bubbling up into strategic planning and decisions. It is built into the culture of organization.

Multiple points of view or do they shoot the messenger? We look at the income statement and matchup “what ifs.” The answers to all the questions in the boardroom are not in here but are out there. Go out and talk to employees, suppliers.

Communicate and articulate your risk appetite, your tolerance. Yes, we have a dollar amount we are concerned with laws, public perception.  Close to zero tolerance for environmental issues (perhaps more because of possible reputational damage?). Key is dialogue, discussing all sides of the issue. Mitigation.

There is a bigger chance of group think with small boards… they are generally hyper-focused on one or two risks. It is Defcon 5 every day at small companies. Resources to hire outside experts is limited. Often faced with identifying risks but not being able to afford to mitigate the risk.  Advantages – can be more nimble. Cheaper alternative is to mitigate at the portfolio level. For example, the cost of fertilizer swings opposite of meat re price of grain.

Optimizing risk management but not in silos. We have a clear strategy, with risk and controls being linked. Use of technology to continuously monitor is widespread.

Organizing within the board. EHS committee (Envor, Health, Safety committee) Survey one-on-one of board members rating top 35 risks… asked same of management. Valuable to see how perception differs among board and among management… provides a angle lens.

Focus on audit committee and risk… starts in the nominating committee, not the risk committee. Nominees need to be able to understand the risks, otherwise the whole board is compromised.

Social media is an unbelievable minefield. Composition of board and diversity is the most important risk issue. It helps to have an unconventional thinker on the board. Balance between skepticism without making a complete nuisance of yourself.

Each director rates others on many dimensions every year. Sit down and coach them.  It comes down to the chair to bring people out to ensure they are getting heard or not getting beat up on. Facilitator. Crisis/response. Proactive. Prepare for unknown. Stress test, scenario plan.

Utilities have zero tolerance for service interruption. Business continuity is critical. Test at non-critical times. Right demeanor, experience in assessing issues, gut reaction of those with experience in industry will be better. Thailand flooding. All hard drives mostly built in the same area, increases volunerability. Shows even big companies can get it wrong.

The board may need to be thinking different from management in a crisis. It pays to have a separate chair and CEO. Innovation and our ability to capitalize on innovation.

We’ve driven up the cost of going public. How do we get balance? The lions share comes from small companies but we’ve had the dotcom bubble as well. Private companies can do well, self-regulating. Being public shouldn’t be the be all end all.

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