Active Board And Senior Management Oversight

To be effective in your oversight requires that you actively participate in the affairs of the bank. One of the most obvious ways of doing this is to attend all board and committee meetings and to offer management your advice and counsel whenever you believe it is in the best interest of the bank. If you consistently miss meetings, your absence will be noticed not only by other board members, but banking supervisors as well. Your effectiveness as a director is likely to be in doubt once you have missed 25 percent of all board meetings held in one year.

Providing active oversight requires more than attending meetings. You must also:

• Be diligent in learning about the bank's business activities.
• Know something about the inherent risk associated with current activities, as well as proposed activities.
• Play an active role in developing and approving policies to place boundaries and conditions on the bank's conduct of activities.
• Make sure there is a reporting structure capable of indicating that what you've asked to be done is being done.

As an overseer of management, it is not your role to run the bank on a daily basis. To use an analogy from the world of sports, your job is to set and enforce the rules for playing a game, much like a referee. Management's job is similar to that of a coach, who, knowing the players' abilities, directs the team's on-field play to achieve victory.

Active oversight requires that the board hire capable bank managers and periodically review their performance. An important part of the review is the assessment of the operating environment established by management. Does management demonstrate (by word and example) integrity, honesty and ethical behavior in business dealings within the bank and with bank customers? Is there a commitment to competence? Are individuals encouraged to come forward when they suspect wrong doing?

Adherence to these and other core values and principles establishes the tone of the organization and is a major contributor to a bank's safe and sound operation. If honesty and integrity are traits exhibited by management and the board, employees will follow suit. If the wrong example is set, employees are more likely to ignore company policies and procedures.

Having knowledge of the risk exposure posed by a bank's business activities is solely the responsibility of a senior officer, such as the chief executive officer.
	True
	False	Bank directors, to be effective in their oversight, must have knowledge of the nature and the magnitude of a bank's risk exposures. Without such knowledge, it becomes difficult to devise appropriate systems and processes to control the risks the bank faces.

An important matter to consider in evaluating management performance is the tone of the organization established by management.
	True
	False	A positive tone filters throughout an organization and helps in its safe and sound operation. A poor or negative environment increases the potential for fraud and abuse