A recent Strategy & Business article by Michael Schrage emphasise this. In the article Schrage uses the term "The passive board," ...

A number of recent conversations I've had with board members of a variety of organizations highlighted the changes in the role of a board. Increasingly, risk assessment and risk intervention, are being expected as core capabilities for boards.

A recent Strategy & Business article by Michael Schrage emphasise this. In the article Schrage uses the term "The passive board," to describe a board "which obeys the law but does not provide meaningful oversight."

These "passive boards" were in evidence in a number of financial institutions as the money meltdown of recent years unfolded. One example Schrage gave was when Citigroup's Chairman and CEO Charles Prince justified his the bank's "party hearty" approach to risk in this comment reported by the Financial Times.
" When the music stops, in terms of liquidity, things will be complicated, But as long as the music is playing, you've got to get up and dance. We're still dancing."

Schrage's article asks the question " Where was the board?"

Apparently there was no board intervention, no pressure from concerned shareholders that kept the 'dancers' from 'dancing'

Boards need to step up and move from being passive to active and in some cases even aggressive, about the 'legality/morality' of some company decisions and actions. But how do they know when to step up? Having a clear and articulated policy on the board's role in risk management is fundamental to their ability to step up. A clear statement of the principles the board will apply help everyone wit ha vested interest in that company and communities at large, understand that there is a group of people who accept responsibility for ensuring 'their' company acts responsibly.

Schrage talks about boards having a risk manifesto, and describes that as being
"a public exercise in articulating how the board aspires to assess and oversee enterprise risk. It is a boardroom mission statement aimed at individual shareholders and institutional investors to help them understand how their fiduciaries define their risk oversight obligations.

Risk manifestos offer useful visibility into risk culture and corporate governance. They should be written by the board in collaboration with management. The manifesto's purpose is not to provide a comprehensive checklist of items for directors to collectively tick off as they review strategic acquisitions or capital expenditures. The goal is to define basic principles.... In short, the best way to make governance better isn't to put more rules in place, but to keep close to fundamental principles, such as transparency and engaged management, that have been demonstrated to work over time"

Creating a risk manifesto is what i call creating 'Board Role Alignment.' When the board is aligned with it's role as an 'active/aggressive' board, then the principles they will operate by, and expect the company to adhere to, become clear.

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