Asymmetric Information Risk

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Directorship is a part-time job. Management is a full-time job. It is expected—and a fact—that   there is an information imbalance. This panel discussed “asymmetric information risk” and how to overcome it. What can boards do to ensure they have the required information to provide effective oversight and advice? They can work with management to improve the quality and usefulness of the information they receive about the business and industry. How? By aligning interests and improving the relationship between management and board members. Having a culture that allows dissension and debate can also help. Additionally, discussing risk on a routine basis is critical. This asymmetry is, and will remain, a reality. Accordingly, it’s important for boards and management to work together so the imbalance is not an impediment to boards doing their jobs.

1. Directors must have a clear vision of what they need to know, how the information provided pertains to the strategic plan, and what they are going to do with that information.

2. Directors must be proactive in identifying and requesting the precise information they need in order to carry out their duties. Directors have a responsibility to obtain this information from a variety of sources, both internal and external to the company, and to use this information to enhance their understanding and provide value in the boardroom.

3. Directors should continually ask themselves the following: What is the conversation we should be having but are not, and what can we do to improve the conversation we should be having?

Mary Ann Cloyd
Leader, PwC, Center for Board Governance

Martin M. Coyne II
Director, Akamai Technologies, RockTech; Chairman, CEO Learning Network; President, NACD New Jersey Chapter

Alan R. Crain Jr.
Senior Vice President, Chief Legal & Governance Officer, Baker Hughes Inc.; Director, NACD Texas TriCities Chapter

Michael Schrage
Research Fellow, MIT Sloan School

This summary provided by PricewaterhouseCoopers.

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