Board directors ‘struggling with corporate risks’

Corporate Board Member magazine and FTI Consulting, Inc., the business advisory firm, collaborated on the seventh annual legal study, the findings of which indicate that with the recent glut of leveraged buyouts (LBOs) hitting US companies, enterprise risk management (ERM) has moved to the forefront of issues facing boards of directors and general counsel.

In their efforts to reduce corporate risk, companies are increasingly turning to ERM, a systematic approach to identifying, quantifying, managing, and mitigating risk, noted Roger Carlile, leader of FTI Consulting's Forensic and Litigation Consulting segment. "If crisis management is the remedy to an explosive situation, ERM is the preventive medicine," Carlile said.

While 45 percent of directors and 48 percent of general counsel spent more time on ERM in 2006 than in previous years, only 27 percent of directors and 25 percent of general counsel said they would like their boards to allow more time for ERM in 2007.

In other findings, the surveyed groups identified corporate governance and mergers and acquisitions (M&A) risk as the two areas in the most need of an ERM assessment:

- Forty-one percent of board directors said that governance changes were the area most requiring additional preparation, compared with 35 percent of general counsel.

- Approximately one-third of each group said that understanding M&A risk should be their company's highest ERM priority.

The survey also found that today's litany of corporate risks is leading both directors and general counsel to seek their own personal outside counsel:

- Forty-four percent of today's directors would seek personal advice from outside lawyers and 51 percent from non-legal advisers. Meanwhile, fully 57 percent of general counsel (usually the ones doing the advising) said they would seek personal advice from outside legal counsel, and 48 percent from outside non-legal advisors.

- The leading cause for this increased reliance on outside advice is M&A issues, on which 62 percent of directors and 66 percent of general counsel said they would retain personal outside counsel. In second place was compliance with Sarbanes-Oxley, on which 50 percent of directors and 43 percent of general counsel would seek outside advice.

The increased liability stemming from Sarbanes-Oxley has required both general counsel and directors to establish a reporting structure within a culture of compliance.

- A majority of both directors (53 percent) and general counsel (55 percent) said that they spent more time on compliance in 2006 than in 2005.

- However, 62 percent of directors said they would like to spend less time on compliance in 2007 than in previous years, while only 37 percent of general counsel agreed.

Directors appear to be taking a greater role in managing corporate crises:

- Thirty-six percent of directors reported they spent more time on crisis management in 2006 than in the past, compared with only 27 percent of general counsel.

- A nearly identical majority of directors and GCs (56 percent and 57 percent) agreed that they will spend the same amount of time on crisis management this year as last year.

The seventh annual legal study, surveying 802 directors and 235 general counsel, was highlighted in Corporate Board Member's July/August issue. The complete findings, along with relevant commentary from Corporate Board Member and FTI Consulting, are published in a special supplement, "The Legal Playing Field," which is being mailed with the magazine's September/October issue. The supplement is also available online at www.boardmember.com/PDFs/LegalPlayingField.pdf

•Date: 20th August 2007• Region: US/World •Type: Article •Topic: Operational risk
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