As a speaker at this summer’s Risk Management Conference at Fairmont Tremblant, Que., (August 10 to 12), Lloyd Komori, risk and governance expert, and faculty member of The Directors College, will talk about the challenges of assessing risk from the perspective of both a board member and a risk manager.
In advance of the conference, we interviewed Lloyd about what board members of a plan need to know and how risk managers can meet that need. “Many management teams struggle to discern what the board wants,” notes Komori, who has been (at different times) on both sides: the leader of a risk management function and a member of a pension plan’s board of directors. “They get caught in this kind of guessing game: do I share this, do I not share that? They keep trying to guess what the other side wants or has.”
One consequence may be too much information – or a never-ending quest for information – information that may not be essential or even appropriate. Management often provides the board with way too much material in an effort to be “fully transparent”. However,by giving directors/trustees tons and tons of material, they often don’t what to make of it.
The key to information management, in part, is education, Komori explains. “I don’t believe a board director needs to go to actuarial school. I think it’s incumbent on the management team, be they risk people, be they investment people, be they actuarial people, to convey the key messages in simple straightforward language.”
And it’s equally important, he adds, for management to show courage – and to draw lines against what might be construed as getting into “management kitchen” by board directors/trustees. This can occur if board members have prior experience in the investment industry and feel that they can make a contribution.
“I do think it is important for a board to have a diversity of technical skills and experience ,” he says. “But at the end of the day, there’s a line that separates direction from suggestion and that line should not be crossed.” Sometimes a board member can push too far into investment practices by recommending specific actions based on their prior experience in management. Management often feels they need to heed these recommendations because of who is offering them. Komori explains. This will create accountability issues in the future when something that a board director recommended and management initiates goes south.
To that end, management needs a plan on what and how it’s communicating to the board, especially as it relates to the board’s responsibility for the oversight of risk management.
Komori’s philosophy is for management to provide their board with concise and strategic insight into how risk is measured and managed. The board should have a view of what they need to see in order for them to fulfill their fiduciary obligations.
Determining how much information is presented is another challenge. Education is a continuous process and needs to be systematic, transparent and practical.
The pace of how education is rolled out must also reflect the board’s capacity to consume and digest.
“The menu proves an apt metaphor,” says Komori.
“You don’t want to shove the whole meal in front of the board,” he explains. “We’ve got a menu: you’ve got your appetizer, your main course, and your dessert. We’re not going to give you the entire meal all at once. Maybe you do it over a year or a bit longer depending on the receptivity and the capacity of the board. The menu is the limit, that’s the point. You can’t keep on going back to the buffet. It’s a fixed price menu.”
To learn more about the Risk Management Conference, please visit the conferences section of the CIR website. If you are interested in attending this event, please email Alison Webb to be considered, as limited space available.