Don't miss the key decision points: the history of board response to new government initiatives provides some cautionary lessons.

• Author: Weidenbaum, Murray
• Position: COMPETITIVE EDGE

The risks facing a business come in many shapes, sizes, and varieties. The first step in dealing with them is to identify those risks, and then to analyze ways of responding. Selectivity is required in choosing which risks to emphasize. This is especially relevant in the case of the independent director.

* Changes in the Risk Environment: The nature of the risk environment is changing rapidly. Every company in every industry in the United States is facing an expanding array of government rules, requirements, subsidies (inevitably with strings attached), and second-guessing. Health and financial reforms are the most obvious examples. The Department of Labor and the National Labor Relations Board are in less visible stages of policy development. Former union officials have been appointed to top positions in both agencies and they are very active on the policy front. Simultaneously, the Department of Justice has announced a new attitude of greatly stepped up antitrust enforcement.

Thus, many federal agencies can and intend to issue new rules without the need for additional legislation and to increase enforcement of old regulations. There are various precedents for holding the board of directors accountable for major lapses in regulatory compliance. In this connection, many companies take an anticipatory rather than reactive position to these risks by emphasizing prevention rather than amelioration of risky situations after they occur.

* Changes in the Economic Environment: The economic environment is becoming a source of risk to the success--and sometimes even to the existence--of many corporations. In recent years, the national economy has become less stable, important markets less profitable, and competition has moved to a higher level. China is rapidly catching up to us, in international trade as well as in economic performance. A decade ago, the U.S. was the world's largest exporter and China was in ninth place. Last year, we were still No. 1, but China had jumped over several major European nations to become No. 3. These are major changes in the operating environment.

* Risks From Revised Stakeholder Expectations: A growing array of risks results from the enhanced expectations of many stakeholder groups, and their views may not always be expressed in a polite and low-key manner. Concerns, especially hostile ones, may be conveyed in a variety of not always friendly locales: legislative hearings, media investigations, reports by interest...