Compliance Issues Stealing Board Member Attention

November 1, 2006 ( - Nearly three-fourths (73%) of board members of US financial services firms surveyed by PricewaterhouseCoopers said they have been spending less time on strategic business issues than on compliance issues.

According to a news release on the survey, though 51% of survey respondents said the time spent on compliance is beginning to decrease as they become more knowledgeable of new regulatory requirements, 61% said the lack of knowledgeable board members willing and available to serve, especially for the audit committee, is a challenge. Sixty percent of board members surveyed said their compensation does not adequately reflect the increased responsibility, risk and accountability they have assumed in recent years, and 37% said they are concerned they have assumed personal risk by serving on the board.

Of particular concern to respondents was executive compensation. Seventy percent of board members surveyed said they do not think audit committee members worked closely enough with the compensation committee on the issue of executive compensation, and 23% said required compensation disclosures made them question the audit committee’s ability to sign off on filings required by the Securities and Exchange Commission.

Strategic issues board members said needed their attention included the level of due diligence and understanding of sophisticated financial instruments being used in the market (97%) and succession planning (60%). Only 28% of respondents said their boards have actually approved a succession plan. Three-fourths said the increasing use of more sophisticated financial instruments such as derivatives will be the next big regulatory focus of the industry.

When asked to name the biggest business concerns for their companies over the next couple of years, respondents said they were concerned or highly concerned about:

  • Managing performance expectations (87%),
  • Potential impact of a recession in the US (77%),
  • Rising interest rates (77%),
  • A downturn in the bond market (77%),
  • A downturn in the stock market (69%),
  • Rising health care costs (69%), and
  • Meeting pension and retiree benefit obligations (53%).

Almost one-third (32%) of board members surveyed said they are working with management to prepare for a major market downturn.

The survey was conducted in October among 300 board member attendees of PricewaterhouseCoopers’ 2006 Financial Services Audit Committee Forum in New York. The board members represented a cross section of the financial services industry, including the banking, brokerage, investment management, insurance, and real estate sectors.