Defining "asymmetric information risk"--its importance.

• Author: Hooda, Sheila
• Position: GOVERNANCE LESSONS - Editorial - Brief article

Management typically has more detailed firm-specific knowledge about the daily operations of the company.

Boards in their independent, external role bring professional experience, alternate perspectives and objectivity, and exercise oversight.

This information imbalance--or asymmetric information--is a positive and complementary to management's internal views. However, it could also present a serious governance challenge and risk if the information, underlying assumptions and analyses that are critical i.e., risk related measures and assessment, performance metrics etc., is not received in a timely manner and thoroughly discussed at the board level.

Management's presentation of the information could include their biases. Relying on this information could preclude boards from...