Directors' roles in assessing strategy.

In the current volatile climate, corporate boards must understand their companies' risk exposure. But to do so effectively, they must feel comfortable asking senior management the right questions, notes a new report from The Conference Board.

"A board of directors should not miss the opportunity to fully re-evaluate the company's business plan for the coming 12 months," says Mark S. Bergman, co-head of the capital markets and securities group at Paul, Weiss, Rifkind, Wharton & Garrison LLP, and author of the study, Assessing Corporate Strategy: Liquidity Needs, Strategic Transactions, Internal Controls and Disclosure.

Bergman says the board should "assess the impact on corporate objectives of projected cash flow, the limited availability of bank debt, the potential restrictions on the company's ability to raise equity or debt through the capital markets and the fixed component of the company's cost structure."

Based on the preliminary review, the report notes, board members should: determine whether capital expenditures can be deferred; discuss whether elements of the growth strategy should be deferred and potential effects; evaluate opportunities to cut costs as well as the implications; and identify the factors that could contribute to an adverse action by rating agencies and design preventive measures.

This report, the second in The Conference Board series "The Role of the Board in Turbulent Times," identifies "pressure points" for boardroom discussions on how to reassess corporate strategy and improve directors' performance in areas including oversight of counterparty risk and liquidity needs.

[ILLUSTRATION OMITTED]

For example, a board should regularly acquire information to analyze its company's liquidity needs as well as potential sources of capital.

Directors should expect management to report on: access to the commercial paper market or other short-term funding sources; maturity dates of term loans and termination dates of revolving credit arrangements; the amount of available credit under existing revolving credit facilities; and current exposure to and reliance on securitization markets.

As part of this assessment process, among other things, boards should: consider where and how cash on hand is invested; determine whether there are alternative sources of equity and debt capital; and consider potential covenant compliance issues under existing financing arrangements.

Finally, the report recommends that boards ensure companies strengthen communications. As they address the contingent situation and its repercussion on the business, "board members and senior executives should consider what messages need to be conveyed" to shareholders, employees and key stakeholders.