This principles-based approach recognizes that large firms have a broad range of business models, structures, and practices. While we want to be clear about our expectations, we also want to give directors the flexibility to meet them in a manner that works for their particular boards.
First, an effective board should guide the development of a clear and coherent strategy for the firm and set the types and levels of risks it is willing to take. Alignment of business strategy and risk appetite should minimize the firm’s exposure to large and unexpected losses.