Non Executive Directors Left Ignorant of Risk According to Report
A newly published report states that an “information glass ceiling” leaves non executive directors (NEDs) ignorant of corporate risk, reveals company secretarial services provider London Registrars (http://www.london-registrars.co.uk/).
The report from Cass Business School on behalf of AIRMIC, the risk management association, was entitled Road to Ruin. It examined the cases of 23 companies in differing sectors which had assets worth over $6 trillion before the global economic crisis and which had suffered considerable failure following the crisis. The report asserted that patterns emerged with each company, even given their inherent differences, which point to non executive directors being left in the dark about risk. John Hurrell, Chief Executive of AIRMIC stated that, “This report makes it clear that there is a pattern to the apparently disconnected circumstances that cause companies in completely different sectors to fail…..More big corporate failures are inevitable as long as directors are blind to the risks they face”.
Road to Ruin highlighted the fact that non executive directors and other board members lacked the experience and skills required to keep executives in check. In addition, it emerged that board members were ‘blinded’ by potential reward and opportunity to the risk inherent in key actions. Professor Chris Parsons, who led the Cass Business School research team believes that “Events that bring down or seriously damage otherwise successful companies don’t just happen. They are commonly the result of boards failing to see underlying risks that threaten the company”. Professor Steve Haberman, Deputy Dean of Cass Business School, added “Our report shows that boards, and particularly their chairmen and NEDs, need to recognise the importance of risks that are not captured by current techniques”. The report concluded that all companies should analyse their current risk management strategies at all levels of the firm, making sure that “missing risks are now included in risk maps”.
London Registrars helps firms to meet all company compliance requirements, providing a wide range of comprehensive corporate and legal support services, including company secretarial services and corporate governance assistance. Learn more at http://www.london-registrars.co.uk/.
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