the board’s role in risk management & restructuring a fraternal
TRANSCRIPT
THE BOARD’S ROLE IN RISK
MANAGEMENT
Alex Todd presenting to:
Toronto Police Widows & Orphans Fund
GovernanceCommittee.com
WHAT IS THE PURPOSE OF CORPORATE
GOVERNANCE?
GovernanceCommittee.com
WHY DO WE NEED CORPORATE BOARDS?
GovernanceCommittee.com
WHAT SHOULD CORPORATE BOARDS DO?
GovernanceCommittee.com
Profit
Risk Management
Collaboration
Leadership
Sustainability
BUSINESS
Golden
Rule
WHAT’S THE DIFFERENCE BETWEEN RISK AND
UNCERTAINTY?
Risk Management Innovation
WHAT ARE THE EXPECTED OUTCOMES OF RISK
AND UNCERTAINTY?
HOW CAN BOARDS CREATE VALUE?
GovernanceCommittee.comGovernanceCommittee.com
Tactical Risk
Price gouging
Strategic Risk
Premium brand
Systemic Risk
Externalizing risk
Profiteering
High profit margins
Economic bubble
Tactical Uncertainty
New market
Strategic
Uncertainty
New offering
Systemic
Uncertainty
New business
model
Revenue growth
Competitive advantage
New value
HOW MUCH VALUE IS REQUIRED?
Global Business/ Societal Innovator*
Global Industry Structure Innovator
New Business Model Innovator
New Product, Service Market
Innovator
Process Innovator
Safety
Value Potential
Belonging
Esteem
Self-
Actualization
Harmony
Tim
e
Horizon
Maturity
* Levels of Work labels (Van Clieaf and Kelly, 2005, p.
5)
GovernanceCommittee.com
HOW DO WE KNOW THE BOARD IS ACCEPTING
APPROPRIATE RISKS TO CREATE REQUIRED
VALUE?
GovernanceCommittee.com
Ad hoc
•Undocumented; in a state of dynamic change; depends on individual heroics
Preliminary
•Risk defined in different ways and managed in silos. Process discipline is unlikely to be rigorous.
Defined
•A common risk assessment / response framework is in place. Organization-wide view of risk is provided to executive leadership. Action plans implemented in response to high priority risks.
Integrated
•Risk management activities coordinated across business areas. Common risk management tools and processes used where appropriate, with enterprise-wide risk monitoring, measurement and reporting. Alternative responses analyzed with scenario planning. Process metrics in place.
Optimized
•Risk discussion is embedded in strategic planning, capital allocation, and other processes and in daily decision-making. Early warning system to notify board and management to risks above established thresholds.
Source: Measuring the Maturity of Risk
Management – Marks on Governance, March 29,
2011
HOW DO WE KNOW THE BOARD HAS THE
CAPACITY TO OPTIMIZE RISK-ADJUSTED VALUE
CREATION?
Principle 1
Ensuring the Basis for an Effective Corporate Governance Framework
Principle 2
The Rights of Shareholders
and Key Ownership Functions
Principle 3
The Equitable Treatment of Shareholders
Principle 4
The Role of Stakeholders in
Corporate Governance
Principle 5
Disclosure and Transparency
Principle 6
The Responsibilities
of the Board
GovernanceCommittee.com
OECD Principles of Corporate Governance
GovernanceCommittee.com
Thank You
RESTRUCTURING A FRATERNAL FOR THE
21ST CENTURY AND BEYOND
Alex Todd presenting to:
Toronto Police Widows & Orphans Fund
GovernanceCommittee.com
WHAT ARE THE PRIMARY CONSIDERATIONS?
GovernanceCommittee.com
Global Business/ Societal Innovator*
Global Industry Structure Innovator
New Business Model Innovator
New Product, Service Market
Innovator
Process Innovator
Value Potential
* Levels of Work labels (Van Clieaf and Kelly, 2005, p. 5)
HOW DOES THE BOARD ADD VALUE TO
MANAGEMENT?
GovernanceCommittee.com
Global Business/ Societal Innovator*
Global Industry Structure Innovator
New Business Model Innovator
New Product, Service Market
Innovator
Process Innovator
Value Potential
* Levels of Work labels (Van Clieaf and Kelly, 2005, p. 5)
CEO’s Level of
Work
Governance
Level of
Work
Cognition
Hierarchy
NetworkMarket
Hierarchy
NetworkMarket
Tim
e
Horizon
Board
Board
HOW DOES THE BOARD KNOW IT IS MAKING
VALID DECISIONS?
GovernanceCommittee.comGovernanceCommittee.com
Global Business/ Societal Innovator*
Global Industry Structure Innovator
New Business Model Innovator
New Product, Service Market
Innovator
Process Innovator
Value Potential
* Levels of Work labels (Van Clieaf and Kelly, 2005, p. 5)
Stakeholders
Hierarchy
NetworkMarket
Hierarchy
NetworkMarket
HOW DOES A BOARD ENSURE THE BUSINESS IS
SUSTAINABLE?
GovernanceCommittee.comGovernanceCommittee.com
Global Business/ Societal Innovator*
Global Industry Structure Innovator
New Business Model Innovator
New Product, Service Market
Innovator
Process Innovator
Value Potential
* Levels of Work labels (Van Clieaf and Kelly, 2005, p. 5)
Hierarchy
NetworkMarket
Hierarchy
NetworkMarket
Empowerment Risk Transference
Adaptive
Capacity
HOW DOES THE BOARD ASSESS THE VALUE OF A
RISK?
GovernanceCommittee.com
Strategic Stakeholders
Customers Investors Various Various
HOW CAN WE STRUCTURE THE CORPORATE
GOVERNANCE SYSTEM?
GovernanceCommittee.com
Shareholders
/ Members
Board of Directors
Employee
s
HOW CAN WE STRUCTURE THE CORPORATE
GOVERNANCE SYSTEM?
GovernanceCommittee.com
Shareholders
/ Members
Board of Directors
Employee
s
Supervisory Board
/ Member Council
HOW CAN WE STRUCTURE THE CORPORATE
GOVERNANCE SYSTEM?
GovernanceCommittee.com
Shareholders
/ Members
Board of Directors
Governance
Board*
Stakeholder
Congress*
Employee
s
* Terms from Shann Turnbull’s Network
Governance
HOW CAN WE STRUCTURE THE CORPORATE
GOVERNANCE SYSTEM?
GovernanceCommittee.com
Board of Directors
Employee
s
Senate*
Shareholders
/ Members
* Terms from Shann Turnbull’s Network
Governance
HOW CAN WE STRUCTURE THE CORPORATE
GOVERNANCE SYSTEM?
GovernanceCommittee.com
Board of Directors
Employee
s
Senate*
(Watchdog Board)
Shareholders
/ Members
Stakeholder
Congress*
* Terms from Shann Turnbull’s Network
Governance
HOW DO THESE CONSIDERATIONS
CORRESPOND WITH BEST PRACTICES?
GovernanceCommittee.comGovernanceCommittee.com
Global Business/ Societal Innovator*
Global Industry Structure Innovator
New Business Model Innovator
New Product, Service Market
Innovator
Process Innovator
Value Potential
* Levels of Work labels (Van Clieaf and Kelly, 2005, p. 5)
Hierarchy
NetworkMarket
Hierarchy
NetworkMarket
Empowerment Risk Transference
Stakeholders Cognition
OECD Principles:
• #1- Ensuring the Basis
for an Effective
Corporate Governance
Framework
• #6 - The
Responsibilities of the
Board
OECD Principles:
• #4 – The Role of
Stakeholders in
Corporate Governance
• #5 - Disclosure and
Transparency
OECD Principles:
• #2 - The Rights of
Shareholders and Key
Ownership Functions
• #3 - The Equitable Treatment
of Shareholders
GovernanceCommittee.com
Thank You