On the hot seat with today's challenges: today's directors face more difficult challenges than did their cohorts of several years ago. And though calm seemingly had returned to board-rooms following the rash of business scandals earlier this decade, the financial crisis and its repercussions have again raised the question: "Where were the boards?".

• Author: Steinberg, Richard M.
• Position: BOARDS OF DIRECTORS

There's been a pendulum swing for boards of directors since the early-decade failures of Enron Corp., WorldCom Inc. and others, as well as new stock exchange listing standards and changes in governance rules. The better boards had been providing sound counsel to senior management of the companies they serve. But the new rules and regulations focused board attention on their monitoring role--offering closer oversight of management's activities as well as regulatory and legal compliance.

Now, on the path to 2010, boards are seeking more appropriate balance--continuing to look over management's shoulder, while getting back to adding real value on strategic and related issues.

In the aftermath of the financial services meltdown and the "where were the boards?" questions, company directors in every industry are asking how well they would have fared if they had been in the other guys' shoes. All too often, the resulting answer is "not very well." Complete with ongoing concern about their own personal reputation and potential liability, directors see a need to improve their board's focus and performance.

Against this backdrop, it's appropriate to examine today's hot button governance issues and how best to avoid pitfalls in the critical areas of risk management, compliance with laws and regulations, executive compensation, strategy development and shareholder relations.

Risk Management

Board meetings in today's environment rarely go very long without mention of the words "risk" or "risk management." This comes from an unsettled feeling that if boards of the large mortgage generators and investment banks--dealing with market, credit, counterparty, liquidity, interest rate and other risks on a daily basis--failed to adequately understand and monitor risks in those organizations, then we must do a lot better in quickly grasping our company risks.

Unfortunately, a common approach to handling risk involves asking management to report on the top five or 10 risks facing the company. Sometimes a risk assessment is conducted, usually with some ranking or other prioritization designed to center the board's attention on the most significant issues. There may be a senior executive designated as chief risk officer, who reports to the chief executive and the board and is responsible for identifying the more important risks and seeing that they are appropriately managed.

In other instances, the board itself, or an audit or risk committee, rolls up its sleeves and does its own...