The structure of the board of directors is the key to oversight

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The main role and responsibility of boards of directors is the oversight of management. Recent lawsuits against directors of public companies for breach of supervision should prompt boards of directors to question whether their current governance structures are optimal for maximizing the effectiveness of supervision. It is common, but potentially problematic, for the audit committee to be responsible for all compliance oversight. This scenario can create an opportunity for a complainant to claim that the audit committee did not have sufficient resources to provide effective oversight of the compliance function. This claim may be even stronger when it relates to critical business and industry specific risks, especially in heavily regulated industrial sectors. Boards should carefully review their board committee structures to determine whether there is sufficient management oversight of critical business and industry risks and, if so, consider reallocating responsibilities between boards. various board committees, with corresponding updates to committee charters.

Avoid overloading the audit committee

Audit committees tend to hold more and longer meetings than other board committees. While financial oversight is at the heart of the audit committee’s mandate, it is common for audit committees to be charged with significant compliance oversight in addition to their traditional responsibilities, despite the fact that financial oversight this alone is extremely important and time consuming work. . Unfortunately, given the importance and burden of financial oversight, audit committee directors may have insufficient bandwidth to fully review and address non-financial compliance issues. This could mean that potentially material risks receive only cursory review and management presentations may lack sufficient depth for directors to adequately assess and mitigate potential risks and compliance breaches.


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