Companies Focusing on Rising Legal Risks – Survey

Jay Decenella, IT audit expert
August 14, 2012 /

U.S. directors and general counsel have expressed heightened concerns over escalating risk from cyber and IT security threats, operations and corporate reputation, survey showed.

The 12th annual Law and the Boardroom Study by Corporate Board Member, an NYSE Euronext company, and FTI Consulting, Inc. reflected changes, such as globalization of U.S. businesses and increased online communications and delivery channels happening in corporate America.

The survey attributed the rise in concern over proxy access to proposed rule changes regarding shareholders’ access to the proxy. The proposal also contributed to the rise in private ordering and the manner in which companies manage their communications with shareholders.

The survey found that more than half (55%) of general counsel rate data security as a major concern and 48% of directors feel likewise. The figure doubled since 2008, when only 25% of directors and 23% of general counsel worried about data security.

“I hate to say this, but I think it is going to take several well-publicized security breaches before a majority of corporate boards finally embrace the fact that doing business today without a prudent crisis plan in place is a formula for disaster,” said TK Kerstetter, President, Corporate Board Member. “While a number of companies are taking steps to become more educated on IT risks, the fact is that not enough are taking the appropriate actions to fully prepare their organization.”

Operational risk worries garnered the second-highest percentage of responses from both directors (40%) and general counsel (47%), while corporate reputation risk came next with 40% of responses from directors, and 35% from general counsel.

Furthermore, an analysis of historical Law and the Boardroom data revealed this level of concern has increased compared with 2007 results, when only 18% of directors and 25% of general counsel worried about loss of reputation.

“Boards increasingly are concerned about operational risk in the context of emerging markets, where rising economic prosperity offers opportunities to expand operations and grow market share yet also poses heightened governance risk,” said Neal Hochberg, Senior Managing Director and Global Leader of the FTI Consulting Forensic and Litigation Consulting practice. “To make informed decisions about these market opportunities, corporations increasingly are conducting proactive market risk assessments that identify and prioritize the risks that first need to be evaluated.”

Looking ahead, directors were asked what type of information their board most needs to be as effective as possible in 2012. The five areas receiving the largest percentages of director responses were strategic planning (88%), executive compensation plans (48%), board/ management relations (41%), enterprise risk management (36%) and investor relations (33%).

 

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