Improved incentive-compensation design and better risk-management oversight might have mitigated excessive risk-taking by some companies involved in the financial market crisis, according to recommendations directed to corporate boards by The Conference Board Governance Center.
The report, “Recommendations to Corporate Boards on Overseeing Risk Management and Executive Compensation,” lists “pressure points” for boardroom discussions on improving corporate directors’ performance in areas such as risk-management and executive-compensation oversight, according to a statement by the center.
“The problems faced today by some financial institutions result from the inordinate risks undertaken by engaging in the subprime lending business or by trading mortgage-backed securities packaging those subprime loans, which then defaulted,” Matteo Tonello, associate director-corporate governance research at The Conference Board and author of the report, said in the statement. “Similarly, it is believed that the excessive risk-taking by some firms might have been encouraged by improperly designed incentive-based compensation.”
The board is charged with the responsibility “to oversee the company’s risk exposure as well as ensure a strong link between pay and performance,” as part of directors’ duty in overseeing the “business strategy that generates long-term shareholder value,” the statement said.
The Conference Board’s Governance Center serves as a forum for senior executives from corporations, institutional investors and other organizations on corporate governance practices.
