The Role of the Board in

Strategy & Risk

NACD National Conference
Power Breakfast
October 15, 2012
How are risk and strategy addressed at your company?
Table discussions

1. At the board-level, how involved is the board with the development of

company strategy? Do you take the journey with management or are
you simply asked to discuss and approve a finished product? Does
board input change and improve the final product?

2. How would you describe the importance of aligning of risk and

strategy? In practice do you participate in specific discussions on this
point or are you left to raising questions when the alignment does not
seem right?

1 Copyright © 2012 Deloitte Development LLC. All rights reserved.

Deloitte Governance Framework
The Deloitte Governance
Framework was developed
to help boards and
executive management
assess the effectiveness
of the organization’s
governance programs.

It defines board and

management activities
that support effective
governance.

Each area of governance

can be considered in the
context of four attributes:
• Skills and knowledge
• Process
• Information
• Behavior

2 Copyright © 2012 Deloitte Development LLC. All rights reserved.

Strategic oversight maturity model
An effective board advises management in the development of strategic plans that align with
the mission of the organization, the expectations of stakeholders, and an appropriate short-,
mid- and long-range focus. The board also actively monitors management’s execution of
approved strategic plans as well as the transparency and adequacy of internal and external
communication of strategic plans.

High
Skills and Board thoroughly understands the business and its drivers and has relevant, recent prior experience in
knowledge the industry, adjacent industries/markets and competitors.
Process • Executes a well-documented process to engage at all key points in the strategic planning process:
• Understands risks to and risk of the strategy;
• Establishes and approves KPIs to monitor strategic execution;
• Ensures senior management goals align with strategic priorities;
• Ensures management clearly communicates strategic plans internally to employees and externally to
other stakeholders;
• Approves major strategic, capital or financing transactions and monitors execution;
• Clearly identifies the board leader responsible for execution.

Information Board receives timely, detailed information on the strategic plan at every meeting; board supplements
information received from the architects of the strategic plans with information from internal (risk, HR,
marketing, etc.) and external sources; adequate information related to execution and KPIs is shared with
the board.
Behavior Board and management collaborate on the selection among strategic alternatives; management seeks
and the board provides appropriate input that leverages skills and knowledge; the designated board
leader encourages open dialogue and ultimately builds consensus around the selected strategy; board
exhibits “healthy skepticism”.

3 Copyright © 2012 Deloitte Development LLC. All rights reserved.

The risk intelligence transformation
Four major risk categories from a senior stakeholder’s perspective are:

1. Strategic Risks – risks both to the

strategic objectives and of the
strategic objectives. The
C-suite indentifies the top risks thru
the planning process and obtain
concurrence from the Board

2. Operational Risks – major risks Strategic

that impact the organization’s
ability to achieve the strategic plan

3. Financial Risks – include financial

Operational Financial Compliance
reporting, valuation, hedging,
market and liquidity risks and credit
risks in financial institutions

4. Compliance Risks – unrewarded

risks, typically the primary focus for
enterprise risk management
activities

4 Copyright © 2012 Deloitte Development LLC. All rights reserved.

Illustrative strategic risks

Strategy and Planning

Corporate External
Responsibility Planning Strategy
& Sustainability Factors

Competition Alliances
Climate change
Credit rating Business
Community concentration
investment Customer demands Business Continuity
Management Business model
Energy management Economic conditions/
and alternative Industry trends Capital planning Customers
sourcing External fraud Knowledge Extended enterprise
Natural resource and Geopolitical management Growth
utilization Operational planning
Hazards/ Catastrophic Innovation
Project financing loss Performance Markets
Resource scarcity Laws and regulations management
Mergers/ Acquisitions/
Sustainability strategy Markets Scenario planning Divestitures
Sustainable Third party/Joint Outsourcing
water quality venture requirements Technology

Source: Deloitte Risk Intelligent Map

Copyright © 2012 Deloitte Development LLC. All rights reserved.
5
Questions boards might ask

Does the board…

• Provide “active oversight” in developing the strategy?

• Engage appropriately and regularly on strategic objectives?

• Possess a good understanding of the risks to the strategy—those that may limit
value creation or even cause the strategy to fail—and risks of the strategy—
those associated with each scenario of the strategy?

• Ask probing questions, including those that challenge assumptions of the

strategy presented?

• Have an understanding of the key risk indicators in place to alert decision

makers to a strategic risk? What are the key vulnerabilities?

• Assess potential new risks the strategy can create? Can those be managed?

• Work with management to assess preparedness if this strategy fails? What risks
and rewards do other strategic paths represent?

6 Copyright © 2012 Deloitte Development LLC. All rights reserved.

Making it real

• Board engagement with Enterprise Risk Management

• Effective board strategy sessions/retreats with a focus on risks of and to

the strategy

• Know the risk competitive landscape

• Discuss the “known” to the “unknown”

• Strategic flexibility and value creation

7 Copyright © 2012 Deloitte Development LLC. All rights reserved.

Contact information

Maureen Errity
Director, Center for Corporate Governance
Deloitte LLP
merrity@[Link]
+1.212.492.3997

Bob Kueppers
Managing Partner, Center for Corporate Governance
Deloitte LLP
rkueppers@[Link]
+1.212.492.4241

Sandy Pundmann
Partner
Audit and Enterprise Risk Services
Deloitte & Touche LLP
spundmann@[Link]
+1.312.486.3790
8 Copyright © 2012 Deloitte Development LLC. All rights reserved.
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