Companies are focused on compliance with new proxy disclosure rules, but they may not be providing the whole picture of the company’s risk management strategy, according to a new report out by corporate advisory firm Deloitte.
In analyzing proxy statements by 398 S&P 500 companies, Deloitte found that although companies were meeting basic compliance requirements for risk oversight, they fell short of providing vital information on risk management practices—information which could provide greater comfort to regulators, investors and other stakeholders into risk mitigation efforts at the company.
This, in turn, could have an impact on the perceived strength of the firm and affect investor interest in, and satisfaction with, the company.
The Deloitte report found that companies are actually doing much more than they outline in proxy filings in terms of risk oversight, but they are simply covering base compliance necessities in their proxy statements.
Maureen Errity, director of the Deloitte Center for Corporate Governance, explained: “Most board members and C-suite executives mention that they discuss risk management issues on an ongoing basis, but that story may not be fully communicated in the proxy disclosures we analyzed.”
She said the proxy disclosures may meet the requirements, but there is more to the story of effective risk oversight.
In addition to the basics, companies should also be outlining such things as:
- how risk oversight and risk management are aligned with corporate strategy
- how they leverage risk in corporate strategy decision-making
- how the board is involved in delineating corporate risk appetite
- board oversight or involvement in corporate culture design and management
- other ways in which the board and C-suite are actively involved in creation and oversight of risk management strategies
By providing richer detail in proxy statements, companies can provide a much clearer picture of their risk oversight processes and procedures. This, in turn, gives the market greater clarity into, and hopefully greater confidence in, the strength of the company.