Why Financial Services is Facing Increased Complexity in Board Oversight & Corporate Governance

A public company’s Board of Directors is chosen by shareholders, and its primary job is to look out for shareholders’ interests.  This includes selecting, monitoring and evaluating competent management, establishing business strategies and policies, and monitoring and assessing the progress of business operations.  However, Board oversight and corporate governance in Financial Services face increasing complexity driven by:

  • A changing business and risk environment. Greater geopolitical instability continues to be a concern.  In fact, some CEOs of the largest Financial Services companies have cited the geopolitical situation as the number one risk.  In addition, although inflation has stabilized, it continues to be a concern, both in the U.S. and globally, with even more uncertainty from the impact of potential tariffs and trade wars.
  • Increasing complexity and interconnectedness of risk. The global political and business environment is becoming increasingly complicated to operate.  This, combined with the rise and interconnectedness of risks that many Financial Services companies consider, including cybersecurity, data privacy, fraud, operational resilience, ESG, and the adequacy of management’s overall ERM systems and processes, adds greater complexity.
  • Rising stakeholder demands. Stakeholder demands are on the rise, and not just from what was the primary focus in the past with investors.  These include employees, regulators, customers, rating firms, and activists, all of which require Board focus and their role combined with management’s.
  • Intensifying transparency and disclosures. The SEC and other regulators are requiring greater transparency of certain initiatives, including in the areas of ESG, DEI, climate impact and risks, and cybersecurity risk management strategy and governance.  This adds another complexity to the role of the Board relative to what and how much transparency occurs.

See my LinkedIn post next week on ten areas that Financial Services company Boards need to become more educated and prepared as a result of the above emerging trends.

 

*Judd Caplain is the former Global Head of Financial Services at KPMG.

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