SEC Trends & Developments - Spring 2013 - Reputational Risk is the Primary Concern of Boards of Directors According to Survey
EisnerAmper Releases Fourth Annual Concerns About Risks Confronting Boards
“Social media exacerbates all of the major risk categories we track – financial, regulatory and compliance, fraud, privacy, and data security” EisnerAmper Partner Steven Kreit, CPA, observed as a result of the 4th Annual Concerns About Risks Confronting Boards report, compiled by surveying more than 230 board members of public and private, not-for-profit, and private-equity owned boards. Steve went on to say “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.”
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)
View the full report.
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, Steve 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.”
SEC Trends & Developments - Spring 2013 - Issue
- IFRS – An Update
- MD&A and Footnote Disclosures – Where is the Line?
- National Examination Program 2013 Priorities
- Recent SEC Enforcement Actions
- Accounting Standards Update
- Latest Comments from the Commission
- Social Media Acceptable to SEC
- Reputational Risk is the Primary Concern of Boards of Directors According to Survey; Social Media Amplifies Risk