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CHAPTER 2THE BOARD’S DISTINCTIVEROLE IN RISK OVERSIGHTDr Roger Barker, Head of Corporate Governance, Institute of DirectorsSNAPSHOT■ A key rationale for the board is to ensure that company decision-making isundertaken in the interests of all relevant stakeholders, not just company insiderssuch as management or dominant shareholders.■ The board’s biggest contribution to effective risk management is likely to be itschoice of chief executive. But it also plays a key role in defining the company’s risktolerance and risk culture, and in identifying major risks that may have beenoverlooked or discounted by management.■ The board’s main ongoing task is to perform risk oversight, so it needs to satisfyitself that effective risk management is being practised at all levels of theorganisation.WHAT IS THE POINT OF THE BOARD OF DIRECTORS?A board of directors is a legal requirement for any corporate enterprise. However,the justification for a board of directors in a modern quoted company owes moreto considerations of risk than the need to comply with regulation or statute.In particular, the board can be seen as a direct response to a key risk posed bythe structure of the modern public company: that decision-making becomesdominated by company insiders – particularly the chief executive and topmanagement – whose interests are not necessarily aligned with those of thecompany’s stakeholders (particularly its shareholders). A large number ofcorporate disasters over the last two decades have highlighted the saliency ofthis risk.The board of directors exists as a distinct layer of governance, sandwichedbetween management and the company’s shareholders. In most countries,national corporate governance codes or regulations stipulate that a majority ofboard members should be independent non-executive directors. In addition, it isincreasingly seen as best practice for the board to be chaired by an independent13