Governance, Risk Management, and Compliance

RICHARD M. STEINBERG is founder and CEO of Steinberg Governance Advisors, Inc. He is a nationally recognized expert on governance, risk, and control, and advises boards of directors of major multinational, large, and middle-market companies. He is a former senior partner of PricewaterhouseCoopers (PwC) and the leader of its corporate governance advisory practice. As an expert in internal control and risk management, Steinberg served as the lead project partner in developing the Committee of Sponsoring Organizations of the Treadway Commission's (COSO's) Internal Control—Integrated Framework, and led development of COSO's Enterprise Risk Management—Integrated Framework, the landmark reports recognized as standards for effective internal control and risk management. He has been featured on CNBC's Morning Call and Bloomberg TV's Bloomberg on the Markets and The Bloomberg Report; has guest-lectured at leading business schools including Columbia, MIT, and NYU; has been quoted in publications such as BusinessWeek, Fortune, the Wall Street Journal, Dow Jones MarketWatch, CNN Money, and the Financial Times; and is a monthly columnist for Compliance Week.

• Foreword xiiiPreface xixAcknowledgments xxiiiChapter 1: What is GRC, and Why Does It Matter? 1What is GRC? 2Why GRC Matters 3Chapter 2: Culture, the Critical Driver 5What is Culture? 5More Cultural Failures 6Companies That Got It Right 8Being Legal, Honest, Candid, and . . . 10Integrity versus Spin 13Speaking the Same Language 16Chapter 3: Cost-Effective Compliance Programs 21The Back-Breaking Costs 22Beyond the Direct Costs 24Major Mistakes at Platinum-Branded Companies 24How Companies Got Where They Are 30Keys to Getting It Right 31The Compliance Office 36Making It Happen 38The Rewards 39Chapter 4: Ethics Programs: Another Foundational Block 41Tone at the Top 42Problems at Daimler 42Elements of an Ethics Program 43Setting the Tone at the Top: Hewlett-Packard 51Chapter 5: Risk Management and the Financial System's Near Meltdown 59What Went So Terribly Wrong 59The Regulatory System 63Merrill Lynch 65Where Were the Boards? 68Did CEOs See It Coming? 70Chapter 6: What Is Risk Management About? 75Risk 76Risk Management 79Enterprise Risk Management 80Is It Really Worth the Effort? 85ERM Application Techniques 88Key Risk Indicators 91BP 92Chapter 7: Implementing ERM 99Drivers for ERM 99Pitfalls 102Effective Implementation 106Roles and Responsibilities 114Chapter 8: Does Internal Control Really Matter? 119Impact of SOX 404 on Financial Reporting 122Responsibility for SOX 404 124Other Relevant SOX Provisions 126Do Effective Financial Reporting Controls Really Prevent Fraudulent Financial Reporting? 127Real Life in the C-Suite 130Chapter 9: Control over Operational Performance 133IT Controls 134Société Générale 135Washington Mutual 139Countrywide Financial Corporation 143The Foreclosure Fiasco 144Chapter 10: Boards of Directors’ Focus 153A Focus on the Rules 155Truly Effective Boards 156A Public Watchdog? 158Societal Responsibility 160Potential Pitfalls 163Chapter 11: Overseeing Strategy and Risk Management 169Strategy 169Risk Management 173Chapter 12: CEO Compensation, Succession Planning, and CrisisManagement 185CEO Compensation 185Succession Planning 192Crisis Management 196Chapter 13: Performance Measurement and Reporting 201Performance Measures 201Financial Reporting 205Chapter 14: Building an Effective Board 219Looking Objectively 220A Shift in Direction 221Building a Better Board 223Board Assessments 226Bottom Line 230Chapter 15: Avoiding Board Pitfalls 231Following the Herd 231Obtaining Critical Information 238A Leaky HP Board 245Another Leak—What Was He Thinking? 249Chapter 16: Where the Power Lies 251A Tug of War 252Shareholder Activism 252Recent Achievements 253Dodd-Frank’s Proxy Access 256Where to Draw the Line 261Finding the Right Balance 262Where We Need to Evolve 264Chapter 17: Structural Issues at the Board 265Combined versus Separate Chairman and CEO 265Empowering CEOs in a Shifting Landscape 271Director Compensation 274Chapter 18: Looking to the Future 281New Models for Board Governance 281A Healthy Governance Environment 285Boards’ Perspectives on Risk 289Grasping the Holy Grail of Governance 290What the Future Holds 293About the Author 299Index 301

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