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Reputational Risk The Primary Concern Of Boards – Increasing In Significance Almost 20% In Four Years – According To 2013 EisnerAmper Survey

Regulatory Threats Also of Concern While Social Media Amplifies All Risk

Report: Concerns About Risks Confronting Boards Provides Data from Directors on Public, Private, Not-for-Profit and Private Equity-Owned Company Boards

EisnerAmper issued its Fourth Annual Concerns About Risks Confronting Boards, the report from a survey designed to gain insight to the risks that are top of mind in today’s boardrooms.

Other than financial risk, respondents were asked to identify risks of most concern.  Seventy-three percent identified reputational risk as a primary concern of their boards – a 19% increase in the number of board members who identify this as their greatest concern since the initial Survey, four years ago. The top three reputational risks cited were:

  • Product quality, liability and customer satisfaction
  • Public perception and brand
  • Integrity, fraud, ethics and the Foreign Corrupt Practices Act (FCPA)

Commenting on the Survey’s results, Steven Kreit, a partner in EisnerAmper’s Services to Public Companies practice, said “Social media exacerbates all of the major risk categories we track – financial, regulatory and compliance, fraud, privacy, and data security.”  Kreit observed “social media’s immediacy turns routine challenges into enterprise risks and boards need to be ahead of the curve on digital risk management to understand these threats.”

More than 230 board members participated in the survey. In addition to responses from public and private boards, directors from not-for-profit and private equity-owned boards replied to the survey. Sixty percent of the directors identified themselves as serving on audit committees.

View the report and download the PDF here.

Regulatory and compliance risk, while still ranked as a concern by 56% of respondents, was almost 20 percentage points behind reputational risk. Among these regulatory risks, directors cited Accounting Standards, including revenue recognition, lease accounting and financial instruments (65%), Tax (62%), and Dodd-Frank (54%) as the greatest concerns.

When questioned about strategic direction, 87% of the directors indicated the significance of focusing on internal growth and expansion.

The Survey shows a continuing trend in the use of, and investment in, the internal audit process. More than 60% of respondents stated that internal audit departments were helpful in identifying risk. The percentage rises to 73% for directors on public boards.
 
Figures for implementing a comprehensive enterprise risk management program were also reported and showed that:

  • 33% have a comprehensive program and it is fully implemented
  • 27% have a program but it is not comprehensive
  • 14% have a program but it has not been adequately implemented

For the first time, the Survey asked about the participation of women on boards and, of interest, 21% of boards have not yet engaged in discussions about diversity in board composition. However, 47% had discussed this topic and were making strides to increase female board representation.

Regarding the skills and competencies of CEOs and CFOs, the data shows that directors expect these executives to have a strong grasp and deep understanding of Broad-Based Risk Assessment, Creating Financial Models for Strategic Direction, Cyber Security, Updates on Regulatory Compliance Changes, and Aligning Business Goals to IT.

Directors felt that their boards were doing Very Well or Well Enough in identifying risk through Regular Board and Committee Meetings (90%), External Auditors (84%), Accounting Departments (80%), and Risk Management Insurance Providers (67%).

Summarizing the results from the Survey, Kreit said “Awareness and vigilance in addressing threats are shared by both boards and executives. Directors should have knowledge of the tools available to mitigate risk but implementation remains the role of management.”

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