Wheel of Fortune: Not Your Typical Board Game
In the wake of the recent financial crisis, many now ask whether we should blame the Board of Directors of investment banks, commercial banks and other financial services firms for failing to manage the economic risks associated with their market activities. (See here , here, and here. In teaching the Business Associations course, I find that we have the most interesting discussions when we cover the role of the Board of Directors and Management. The conflicts among the cast of corporate characters – the board, managers, employees, creditors and shareholders (to name a few)- intrigue students. In assessing risk management, we typically do not expect the Board to have a direct role in monitoring risk on a transaction-by-transaction basis or determining the day-to-day operating procedures that reduce risk. We do, however, expect the Board to have a role in establishing policies that address enterprise risk management. When we juxtapose the danger of risks of loss related to certain market activities (think AIG’s financial products group) with our traditional expectations of the Board’s role in firm oversight, we find ourselves asking if it may be prudent to require that the Board be more informed and active in monitoring enterprise risk management.