Magazine article New Zealand Management

TABLED : Risky Business for Directors

Magazine article New Zealand Management

TABLED : Risky Business for Directors

Article excerpt

Byline: Cecilia Farrow

Tightening labour markets, fluctuations in oil prices and exchange rates, natural disasters, and technological revolutions changing the way we share data, continually combine to ensure an unpredictable business environment.

Risk management activities are fundamental to help maximise the probability of success and reduce the possibility of failure of organisations in the face of such instability. Risk management has been perceived as a senior management responsibility; however, the responsibility landscape is shifting and company directors are an important emerging influence in managing organisational risk. The Enron and WorldCom collapses in the United States are key examples of how company directors failed to exercise their legal 'duty of care' and, closer to home, the receivership of Bridgecorp and the case concerning Stresscrete question the limit of directors' responsibility on corporate performance and risk management.

Receivers, liquidators and other third parties may look to the past activities of directors to ascertain if they have incurred liabilities/obligations unreasonably. The Companies Act 1993 has not only widened the definition of a 'director', it has also defined the duties owed by him/her. It is now easier to enforce directors' responsibilities, and courts will interpret them in accordance with the nature and business endeavours of organisations, as well as the nature of positions undertaken by directors. Importantly, directors need to be aware that their liability in the eyes of the law is unlimited and personal, and directors cannot contract out of this liability.

Risk management concerns in New Zealand have been growing and changing with local and global influences. A few years ago, businesses appeared most concerned with the increase of competition and non-compliance with legal and contractual obligations. Today, however, competition and cost of compliance is less worrying compared with the risk of losing data and key staff members, as well as loss associated with major incidents, for example.

We are currently witnessing more organisations taking a proactive approach to mitigating these risks, with some firms employing a risk management officer and implementing formal risk reviews throughout the year. More importantly, there is a growing perception that company directors may have a role in monitoring and guiding the risk management process. …

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