Earlier this month, the Securities and Exchange Commission approved new rules requiring public companies to increase transparency around their boards' risk oversight activities, executive compensation and board leadership structure, among other things. Chair Mary Schapiro explained the rationale behind the new rules this way:
Good corporate governance is a system in which those who manage a company - that is, officers and directors - are effectively held accountable for their decisions and performance. But accountability is impossible without transparency.
The increased transparency, of course, will enable investors to make more informed decisions regarding company leadership. Quickly after the rules were adopted, Internal audit and global business consultancy Protiviti issued a report on what they will require.
With regard to risk oversight, the report indicates the rules will require enhanced disclosure about whether those responsible for risk management report to the entire board, to a risk committee, or to another board committee. The report quotes SEC commentary on the rule as follows:
[D]isclosure of the board's oversight of the risk management process should provide important information to investors about how a company perceives the role of its board and the relationship between the board and senior management in managing the material risks facing the company.
Since the concept of "risk oversight" will likely evolve as companies dive into implementing these new rules, which will be effective as of Feb. 28, 2010, Protiviti is also launching a new newsletter series called "Board Perspectives: Risk Oversight." According to Protiviti CEO Joseph Tarantino, the series is designed "...for both board members who have a working knowledge of risk as well as those who are just beginning to immerse themselves in the discipline." The first issue will examine the differences between risk oversight and risk management.