The biggest risk is having an ineffective enterprise-level risk management culture, framework, and infrastructure. The checks and balances inherent in the relationship between the executive management and outside directors are critical to the governance process and the ability to intelligently exploit risk. When chipmakers were recently downgraded by analysts due to declining consumer demand for computers, it underscored how swiftly a company's entire business model can be attacked. Oftentimes, board members from diverse backgrounds can help by bringing their outside perspectives to the understanding the company's changing business environment. Types of issues needing board focus include the volatility of the regulatory environment, industry consolidation and convergence, and the challenges of international expansion.
Early warning is the key.
A change in, say, a central bank's currency actions or accounting standards can have a massive business impact. Perhaps the biggest transactions that a board oversees involve mergers or acquisitions. Yet most of these combinations don't achieve the promised synergies due to failures ranging from mismatched information systems to culture clashes. Obviously, boards need to do a better job of ensuring that proper due diligence takes place before these transactions occur and that the post-integration plans are feasible and actionable. Other transaction-based risks include obtaining capital available at the lowest cost and foreign exchange risks.