Boards Underperforming in Risk Management

McKinsey Global Institute has published the results of its latest governance survey – “Improving Board Governance”.  This survey collated the responses from 772 company directors globally with 34 percent of them chairs.

The survey results suggests that a greater portion of their boards’ time is now spent on strategy with the share of time spent on strategy being even greater at private-company boards than at public companies, which tend to spend more time on compliance.

Alarmingly, however the survey also suggests that risk management is still a weak spot with 29 percent saying their boards have limited or no understanding of the risks their companies face and that they spend as little as 12 percent of their time on risk management.

McKinsey recommends that boards should consider the following three suggestions for improving their risk management into the future:

• Increase attention to risks. According to respondents, most boards need to devote more attention to risk than they currently do. One way to get started is by embedding structured risk discussions into management processes throughout the organisation.
• Make time. As in 2011, most directors say they want to spend more time on board work, and the results suggest real benefits from doing so: directors at higher-impact boards spend many more days per year on their work than everyone else, which likely helps them stay more relevant to and engaged with important company matters.
• Learn from peers. Directors at boards with less impact have much to learn from the actions taken by higher-impact boards, and not only when it comes to strategy. Using robust financial metrics, conducting postmortems of major projects, and using systematic processes to create competitive advantage through M&A—which the high-impact boards do more often—could all help boards become better.

The full report can be found at: “Improving Board Governance”  I think it is well worth a read.