Board directors fail to understand the major risks facing their companies despite the current emphasis on corporate governance, according to new research, writes Phillip Inman.
The hard-hitting report, commissioned by the London Society of Chartered Accountants, argues that a significant gap exists between the recommended approaches to governance in the Cadbury and Hampel reports and how boards perform in practice.
Harry Branchdale, chairman of the LSCA’s Beyond Compliance working party, said evidence suggested many directors may be unprepared for the risks that are likely to confront their organisations.
The report is based on a survey of 28 companies and research carried out by other bodies over the last year.
Report author Catherine Vagneur, a Pricewaterhouse-Coopers management consultant, said: ‘Too many companies are adopting the form (of corporate governance reviews) without changing the way they do things. A large proportion of companies are not altering their management control and governance policies.’
In-depth reviews revealed non-executive directors had little training in risk management or, if they did, gave little indication that it was important. ‘We asked one of the directors, usually the audit committee chairman, about training but only one out of the 28 said they had studied risk management,’ said Vagneur.
She said non-executive directors should understand the industry, but questioned whether they should accept short-term share options jeopardising their independence.
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