Risk Management Watch: Boards Focus on Risk
Today, corporate boards face a challenging set of issues in responding to the need for improved oversight of risk management. A full 70% of financial institutions place such oversight responsibilities with the board, up from 57% in 2002, reports Financial Week citing a survey by Deloitte Global Risk Management. Financial Week quotes Lionel Allan, CEO of the Silicon Valley chapter of the National Association of Corporate Directors, as saying, “Boards need to better understand risk, whether it’s the audit committee, the risk committee or some other committee. We’re seeing separate committees because companies want to tell the world that they’re taking this seriously, but they’re not necessary as long as the board is handling risk.”
Most recently, UBS announced a corporate overhaul aimed at tightening up board supervision. Four members of the group’s board are stepping down. The changes will help to address criticisms of the bank’s corporate governance (including an overpowerful “chairman’s office”), which may have contributed to the losses stemming from the subprime crisis, reports the FT.
Mitch Feldman, President of executive search firm, A.E. Feldman, says, “Risk is more important now than ever before.” Firms are re-shuffling risk management jobs and stressing the importance of a broad, enterprise-wide, top-down view of risk management.
Amid continued financial turmoil, UBS says it may just break even in the second-quarter. In a statement, the Swiss banking giant says its results are likely to be at or slightly below break-even. UBS says “further market deterioration led to writedowns and losses on previously disclosed Investment Bank risk positions.”
Peter Kurer, the new Chairman of UBS, has already laid out his vision for the bank in the wake of nearly $38 billion in losses, according to Financial Week. The report quotes Kurer as saying that UBS will not only scale back its investment operations, but will also reshuffle the board of directors and create a risk committee to better tackle future threats to the company’s business. Financial Week also states that governance experts expect more companies to establish stand-alone board risk committees to protect shareholders from excessive exposure risk.
Back in May, UBS announced it was reorganizing it risk management and trading business following $37 billion in writedowns stemming from the subprime crisis. The bank created the new role of Group Risk Chief Operating Officer and hired a new Chief Risk Officer (CRO) for the investment bank. UBS also created a global head of proprietary trading covering both equities and fixed income, and reshuffled its fixed income division. The changes were all part of a wider reassessment of risk management at UBS in the wake of a scathing 50-page report into how the group managed to lose tens of billions of dollars in less than a year. The paper placed much of the blame for the bank’s string of losses on ineffective risk management. Essentially, UBS admitted that its culture had been focused on boosting revenue, while sacrificing effective risk management.
Now, UBS has announced a corporate overhaul aimed at tightening up board supervision. Four members of the group’s board are stepping down. UBS says its new Corporate Governance model clarifies the separation of responsibilities between the Board and the Executive Management.
According to UBS, “The Board of Directors will have a clear strategy setting responsibility, and it will supervise and monitor the business. The CEO and the Group Executive Board will be fully responsible for the executive management of the bank. The duties and responsibilities of the former Chairman’s office are now allocated to a greater number of committees of the Board, including new Risk and Strategy Committees.” UBS also says in order to replace the skills offered by the departing members, the majority of the candidates will have substantial banking, finance and risk backgrounds.
