ASIC's Warning on Director Oversight of Non-Financial Risks
09/Oct/19 10:34
Last week the Corporate Governance Task Force of the Australian Securities & Investments Commission (ASIC) published the first report of its Corporate Governance Task Force, on Director and Officer Oversight of Non-Financial Risks.
It's conclusions were both depressing and a clear warning to board directors around the world.
"Many directors identified challenges with overseeing non‑financial risks in large, complex organisations. Nevertheless, there was no strong, corresponding trend of directors actively seeking out adequate data or reporting that measured or informed them of their overall exposure to non‑financial risks. Fractured or informal flow of information up to the board and around the board table meant that some boards did not always have the right information to make fully informed decisions. Where information did make its way to the board, there was little evidence in the minutes of some organisations of substantive active engagement by directors…"
"We also observed that companies often had frameworks and structures in place to support board oversight of non‑financial risk; however, in practice, deficiencies arose in compliance with, or execution of, these frameworks. For example, boards approved risk appetites that were intended to articulate the level of risk acceptable for company operations, but management operated outside this appetite for years at a time with the board’s tacit acceptance…"
"We reviewed information flows from management to the board and from board committees to full boards. Our review found that material information about non‑financial risk was often buried in dense, voluminous board packs – boards did not own or control the information flows from management to the board to ensure material information was brought to their attention. Also, management reporting often did not identify a clear hierarchy or prioritisation for non‑financial risks."
You can download the full report and its associated materials here.
It's conclusions were both depressing and a clear warning to board directors around the world.
"Many directors identified challenges with overseeing non‑financial risks in large, complex organisations. Nevertheless, there was no strong, corresponding trend of directors actively seeking out adequate data or reporting that measured or informed them of their overall exposure to non‑financial risks. Fractured or informal flow of information up to the board and around the board table meant that some boards did not always have the right information to make fully informed decisions. Where information did make its way to the board, there was little evidence in the minutes of some organisations of substantive active engagement by directors…"
"We also observed that companies often had frameworks and structures in place to support board oversight of non‑financial risk; however, in practice, deficiencies arose in compliance with, or execution of, these frameworks. For example, boards approved risk appetites that were intended to articulate the level of risk acceptable for company operations, but management operated outside this appetite for years at a time with the board’s tacit acceptance…"
"We reviewed information flows from management to the board and from board committees to full boards. Our review found that material information about non‑financial risk was often buried in dense, voluminous board packs – boards did not own or control the information flows from management to the board to ensure material information was brought to their attention. Also, management reporting often did not identify a clear hierarchy or prioritisation for non‑financial risks."
You can download the full report and its associated materials here.
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