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November 5, 2001—Getting the Boardroom Off Unemployment

Something to Do. With the Black September events, corporate boards, indeed all boards, finally have something to do. It's an open secret, all vast pronunciamentos about corporate governance to the contrary, that most boards verge on the dysfunctional and do very little. As such, they themselves have been a liability for the corporations they govern, their weakness posing a grave risk to the organization.

What Is the Mandate Now? Canadian regulatory bodies of various sorts have been out in front of the U.S. in identifying an overwhelming task for boards of directors. Corporate governance codes for crown corporations, for instance, call the "identification of principal risks" a board responsibility. The board must make sure risks are properly analyzed and evaluated. "Directors can often assist management to confirm the validity of their risk assessment by constructively sharing their views based on their specific knowledge and experience." By the way, we have suggested in our Annual Report on Annual Reports 2001 that risk management is currently a principal strategic issue for all organizations.

Understanding the Job. It is not clear that most board members generally understand what risk is or how to come to terms with it. As good a starting point as any is Peter L. Bernstein's Against the Gods: The Remarkable Story of Risk, which threads the upside and downside of risk. Bernstein claims that the basis of modern business and our fecund economic system is the understanding of risk and risk-taking. By this standard, directors should even be urging more rational risk-taking, while containing unconscious risky behavior that will sink the enterprise.

Emperor's New Clothes or Getting at the Blindingly Obvious. For 30 years we have advised boards, found new members, and even served on a few boards ourselves. With all that, we have only a few clues as to what makes the strong strong and the weak weak. We share all this with you this week in our dictum, "The Emperor's New Clothes, or Seeing the Blindingly Obvious."

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