“In a bull market, be a bull” – sage advice given to me by one of Western Australia’s leading brokers 24 months ago. Of course this approach works fine up until the point that it doesn’t work, and this broker to his credit picked up on nervousness in the market which led to more conservative thinking.
Those that picked the calamity to follow were considered naysayers by many – but the extent of the crash caught so many by surprise. Australia is in relatively good shape – thanks to a rigorous process of debt reduction achieved by the Liberal government, and the stronger regime that we have had in place to regulate the banking sector in comparison to other markets.
If you are a director of a company then the savage effect of removing the wind from the companies that were heavily geared and sails sheeted full into the wind is cause for concern everywhere. Recent news reports indicate a great likelihood of class actions, insolvency practitioners are struggling to cope with demand, and there is a domino effect from companies that fail.
For those that have had portfolios halved in value, the obvious target is boards of companies.
Smart companies already have comprehensive programs in place – policies, reporting, delegations and systems – to cover risk. In addition, smart boardroom practice is to have a structured approach to decision making. It serves two purposes – firstly to ensure that factors are considered rigorously, and secondly, it provides a record for how the decision was arrived at, which factors were considered important at the time. Decisions of the past are often judged on the facts of today. A documented framework allows insight into how the decision was arrived at – and a defense in case of litigation (in the absense of anything else).
For those members of the AICD, the Feb 2009 issue of The Boardroom Report includes “10 ways to bolster risk management”. which covers board composition, governance structure, risk as a standing agenda item, the issue of compensation, and most important of all, setting the tone from the top – the appetite for risk.