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Directors Urged to Focus on Risk Management, Cybersecurity

SEC Commissioner Luis Aguilar said cybersecurity is increasingly becoming the chief risk management issue for directors of many public companies.He said the frequency of computer attacks and the likelihood that they will continue adds to the pressures facing corporate boards.

Public company directors can not afford to lose sight of the important role they have in shielding their companies from unforeseen risks, SEC Commissioner Luis Aguilar said in an October 14, 2015, speech in New York.

“As the spectrum of risks that companies face has increased, so has the recognition among boards that risk management is integral to every aspect of a company’s long-term well-being — and that risk management is applicable to both natural disasters and man-made events,” Aguilar said, as he observed that the threats ranged from natural disasters such as hurricanes to man-made problems such as accounting fraud or regulatory violations.

But Aguilar was most focused on the risk management issues involving cybersecurity, which he said is steadily increasing as a concern for regulators and shareholders.He said the frequency of computer attacks and the likelihood that they will continue only adds to the pressure on corporate boards, and he credited companies and their directors for responding to the threat by holding frequent discussions about the issue at board meetings.

The increased attention to cybersecurity is representative of a broader trend to focus on risk management.

“The goal is to give proper attention to a company’s perceived risks to ensure sufficient preparedness,” Aguilar said.

Aguilar also said that boards are being asked to take on a greater role with risk management and cybersecurity partly because of the dramatic changes that have taken place in business in recent years.

He added that the accelerating pace of change is adding to the pressures directors face and can expect to continue to face.He said he was encouraged by the recent trend among large company boards to regularly evaluate the board’s performance as a group.He also asked more companies to adopt the practice of evaluating the performance of individual directors.

Aguilar also said there was no definitive evidence that term limits for directors helped board performance and cited data that offered mixed assessments about the value of term limits.