While warranted by past excesses, a narrow focus on compliance in the wake of recent corporate scandals and the Sarbanes-Oxley reforms has distracted the business world from the broader purpose of corporate governance – ensuring a balanced risk/return trade-off for shareholders and other stakeholders. It is high time for corporate boards and managers to return to a wider view of corporate health and sustainability.
Corporate governance generally, and boards specifically, have multi-dimensional responsibilities in steering top management towards the right risk choices. Boards should:
Monitor the risk situation of the company systematically to identify and evaluate multiple sources of risk
Understand and influence management risk appetite
Take a portfolio view of corporate risks
Be apprised more specifically of the major risks (or major risk combinations) that could significantly alter business perspectives
Evaluate the way in which management has embedded risk management within the corporation, asking organisational questions, such as “Do we need a chief risk officer?” and technical questions, such as “Which tools are being used?”
Implement joint decision-making procedures in the case of major deals – acquisitions, significant investments and the like.
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