Is Board Risk Oversight Addressing the Right Risks?

Corporate directors and their management teams recognize that growing disruption and uncertainty in the marketplace are creating new, sometimes unforeseen risks, and altering the nature of existing risks. While overall global economic indicators are mostly positive and capital markets are relatively strong, tectonic shifts in how corporations create value demand a rethink of current risk management approaches and their board oversight. Rapid technological advancements, the introduction of new business models, and the disruption of entire industries pose new, often existential risks to companies.    

This report makes the case that current board risk-oversight practices may be inadequate to deal with today’s evolving risk landscape, and suggests ways for boards to close the gap.

The focus on the board’s compensation committee has never been sharper. The components of compensation plans and the link between compensation and company performance are under intense scrutiny from shareholders, employees, policymakers, the media, and other stakeholders. The Report of the NACD Blue Ribbon Commission on the Compensation Committee revisits NACD’s 2003 Report of the NACD Blue Ribbon Commission on Executive Compensation to highlight the new environment in which compensation committees—and, more broadly, boards—are now operating. It recommends that the compensation committee and board work together to establish an executive compensation philosophy that supports the company in creating long-term, sustainable value.

The report includes ten specific recommendations for compensation committees to consider when evaluating their compensation philosophies. It also provides practical tools, such as sample compensation committee charters, a compensation committee assessment, and guidance on executive employment contracts.