Chambers blog: ​When Boards Are Surprised, Who's at Fault?

23-10-2019

Go directly to the entire blogpost of Richard Chambers

​The number of shocking corporate scandals that have damaged major corporations reads like part of a top 10 list of news events from the past decade — Toshiba's accounting debacle, Volkswagen's dieselgate, Wells Fargo's fake accounts, Carillion's collapse, Nissan's CEO salary fiasco.

All proponents of good governance — from investors to regulators to compliance and risk managers to providers of independent assurance — should be deeply troubled by these high-profile scandals. What's worse, these examples of governance failures have a common and troubling subplot: In every case, the boards of these mature and highly sophisticated corporations were largely in the dark about the extent of significant risk management flaws that eroded shareholder value.

Where was the board?

Any analysis of this leads to the obvious question: Where was the board? The IIA's recently published risk report, OnRisk 2020: A Guide to Understanding, Aligning, and Optimizing Risk, offers some valuable insights that could help answer the question.

Key findings in the report, which is the first to offer a view of alignment among three key risk management players — the board, executive management, and internal audit — point to boards having an unrealistic view of risk management:

For every key risk [of 11 addressed in the report], board members rated their organizations' capability for managing the risk higher than executive management did. This finding suggests boards may be failing to critically question information brought to them by executive management due to either receiving insufficient information or from limitations in their own competencies to understand and evaluate risks. The finding also suggests executive management may not be fully transparent with the board about risks and their own reservations about their organizations' ability to manage them.

There are at least three possible reasons behind that misguided and overly optimistic view of risk management. (...) Richard Chambers examines these in his latest blog. Read his entire blog on Internal Auditor Online. 

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