Corporate Officers: The Evolving Legal Duty of Oversight
Contemplating this week’s blog, I came across a Reuters article(1) shared on LinkedIn (LI). It spoke about a potential landmark decision where “the Delaware Court of Chancery recognized corporate officers owe the company a legal duty of oversight”. The ruling essentially extends oversight responsibility beyond boards of directors to corporate officers, meaning they can be sued in cases where appropriate oversight is lacking.
Comments in the LI post encouraged officers to check their Director & Officer insurance coverage to confirm protections. Another critical lever I would offer is to ensure officers have a skilled and trusted risk generalist in (or accessible to) the executive suite and board level ranks.
The right risk talent can help drive robust reporting that ideally detects a dire situation before it occurs. At a minimum, good risk reporting and the discussion that follows, creates a level of transparency that illustrates active oversight that could protect officers & directors in the event of litigation.
A skilled risk professional can also see trouble brewing before it becomes a headline and spot opportunities to leap ahead of the competition by finding ways to leverage data, AI and automation to manage risks.
Beyond the “uber threat” of cyber intrusion and in the #risk management domain of social media, I haven’t seen a lot of material that informs to what extent American companies are harnessing risk talent to identify and address the clear and present danger lurking under the broad umbrella of what the risk community refers to as “operational risk”. Perhaps that’s to be expected.
Operational risk is the risk of loss or harm because of failures related to a variety of business aspects including, but not limited to, technology, processes, product design, third party vendors, change management, insider threats, people, data privacy and cyber security. The range is wide and consequences for failed controls and oversight can be steep as seen in recent cases like Southwest, FTX and others.
Simple Action Steps:
A key to success is having a seasoned risk advisor with the capacity to understand business objectives, survey the landscape, identify potential pitfalls, and offer creative solutions. As the adage goes: “the best defense is a good offense”.
To that end, here are some best practices to keep the risk talent growing and engaged:
° In addition to ongoing training designed to stay on top of emerging risks, sprinkle in courses to increase business acumen.
° Where possible, provide opportunities for exposure to different parts of the company. It allows team members to connect the dots and foster relationships while deepening the risk culture of the organization.
° Encourage attendance at “front office” business meetings and Town Hall style presentations. The more they can learn about the strategy, how businesses function and measures of success, the more value they can bring.
° Tone from the top. This is my favorite because its virtually free and can have the most impact. Setting a culture of transparency at the top of the house lets people know that is okay to raise their hand when they spot a problem. It can avoid surprises and allow for quick response, potentially minimizing the impact.
Final Thoughts:
Another step (and definite game changer) is ensuring risk partners have a seat at the table by including them “on the journey” as opposed to engaging only after a situation occurs. Risk advisors are most effective when brought into discussions early and tasked with the goal of finding a responsible, cost-effective path to “yes”.
If budget is a concern, consider fractional or time bound contract arrangements for risk services to support your organization.
There are plenty of levers to jumpstart or enhance your risk program, the point is to make it happen, even in small bites, because the stakes are rising.
If you need help understanding your risk landscape or developing risk metrics, let’s talk. Click the “Get in touch” button at the top of the page to schedule a free consultation.