Failure to manage risk is a root cause of shareholder value destruction across industries and over time. Nowhere is this fact more evident than in the financial industry, where the recent crisis has persuasively shown the perils of pursuing growth and earnings without a proper understanding of risk. In discussions with board members on what went wrong at companies that failed, or came to the brink of ruin, one common theme stands out: the right questions were not asked at all levels of an

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... zation. This, in turn, prevented appropriate risk remedial actions and threatened survival. The desire to not "let a good crisis go to waste" suggests an urgent need for the new kind of corporate governance-the one grounded in risk management. Over recent decades, the business landscape has become increasingly globalized and rife with uncertainty, while companies and their products became progressively risky and complex, especially in finance. As a result, boards of directors were faced with a daunting challenge. In order to fulfill their fiduciary duty for overseeing risk and weighing in on life-and-death strategic decisions of executives, board members needed to synthesize vast amounts of information, "connecting the dots" across macroeconomic and geopolitical factors, business strategy, corporate finance, risk management. Many failed to do so-largely due to inadequate risk management expertise, lack of adequate support, and outdated tools. As a result, hidden risks were not uncovered, problems were not anticipated, and risk mitigation actions, if any, proved ineffective. Meanwhile, broken organizational and governance structures and lack of common risk language and culture exacerbated the problems. In all fairness, in failing to understand risk, boards of directors were in good company-as the same lack of knowledge, tools, and risk-based transparency plagued executives, investors, rating agencies and regulators. However, the consequences of faulty risk governance on the board level were particularly severe: by flying blind, boards of directors allowed market forces to make choices for them, and devastating results spoke for themselves.