BoardroomDirect: Update on current board issues - July 2013

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Corporate Governance Series 07/31/2013 by Center for Board Governance
BoardroomDirect: Update on current board issues - July 2013

At a glance

This issue of BoardroomDirect® focuses on non-financial companies that use over-the-counter (OTC) derivatives to hedge risks, such as currency, interest rates, and fuel costs, are facing myriad decisions regarding the execution and management of those financial tools under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

This issue of BoardroomDirect® focuses on non-financial companies that use over-the-counter (OTC) derivatives to hedge risks, such as currency, interest rates, and fuel costs, are facing myriad decisions regarding the execution and management of those financial tools under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Issue in focus: Boards need to know about corporates' use of derivatives

Non-financial companies that use over-the-counter (OTC) derivatives to hedge risks, such as currency, interest rates, and fuel costs, are facing myriad decisions regarding the execution and management of those financial tools under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

While management is still responsible for making the business decisions, under Dodd Frank the board is now charged with some specific oversight responsibilities. The regulatory reform, which is going into effect in phases this year, will lead to changes in business strategy, funding, operations, and accounting related to the use of derivatives.

Derivatives are agreements between a corporation and a bank that derive their value from underlying assets, such as interest rate payments, currency, commodities, stock, or any other financial instruments that can be traded. Meant to manage future uncertainty, derivatives often occur in the form of swaps and futures. The Dodd-Frank reforms, which include SEC and Commodities Futures Trading Commission (CFTC) rules, regulate the swap market. The futures market is already regulated by the CFTC.

Some in the political and regulatory communities perceive derivatives as a key contributor to the 2008 financial crisis. One of the goals of the Dodd-Frank derivatives provisions is to lessen risk and increase stability in the market. This comes with increased compliance, reporting, and recordkeeping requirements, which will lead to increased costs and changes related to the use of derivatives.

This month's headlines

Issues in brief

Audit committee issues

Resources, webcasts and events