Risk Governance and the Board

Coulson-Thomas, Colin (2017), Risk Management's Role in Corporate Governance, in Ahluwalia, J. S. (Editor), The Board: Emerging Issues of Corporate Governance & Sustainability Challenges, London, IOD Publishing, 25th October, pp 52-61 [ISBN: 978-81-933766-2-1], 2017

One of the dilemmas faced by directors is the need to be entrepreneurial in ensuring the future succcess of a company while at the same time retaining prudent control. A conversation is required among some directors and boards to review what is meant by risk and risk management, their governance responsibilities in relation to risk, and the extent to which the risk management community is perceived as a help or hinder to addressing contemporary challenges facing boards and their companies, and whether contemporary risk management attitudes and practices inhibit or support risk taking, enterprise and entrepreneurship. Issues that need to be considered include the accountability and professionalism of the risk manangement community, remaining current as risks and requirements change, widening involvement in risk management, learning from other professions, perceptions of risk, risk and responsible business, recognising realities, embracing supply chains and network organisations, chan...

Corporate Governance: An International Review, 2009

ResearchGate, 2020

Studies of board governance are extensive yet existing research offers limited insights into the operations of the Audit Committee (Turley and Zaman, 2007). Existing research on Board Governance and Audit Committees focus on anecdotal attributes of the board such as board size, composition, and dual role of the CEO as chairman. Board performance is generally viewed in hindsight based on measures of financial performance, shareholder value and the ability to acquire debt at lower rates as implied factors that demonstrate good governance. Good risk management may be implied by these measures but is seldom evaluated in empirical studies of board governance. Researchers found that insurance company’s board risk committees were positively correlated with higher financial strength ratings and performance but only after the financial crisis of 2008. Prior to that period of time there was little to no correlation in performance between insurance companies and their board risk committee activities (Ames, Hines, & Sankara 2018). Research on audit committees has conceptualized addressing agency risks with little empirical evidence to support correlations with enhanced financial performance. To a certain extent these studies have inevitably relied on relatively crude proxies, for example, the number and duration of meetings as indicators of how “active” an audit committee is (see for example, Abbott et al, 2004, Bedard et al, 2004, Krishnan, 2005). A separate study set out to investigate the relationship between attributes of corporate governance and performance of companies listed on the Ghanaian Stock Exchange (Kyereboah-Coleman, Adjasi & Abor, 2006 – 2007). The study of corporate governance and firm performance of Ghanaian listed companies between 1998 – 2003 consisted primarily of a regression analysis to determine correlations between variables such as board size, debt financing, external directors and other factors with corporate performance. Much of the analysis is mixed or inconclusive. “Though it has been argued (Fama & Jensen 1983, Baysinger and Butler 1985, Baysinger & Hoskinsson, 1990, Baums 1994) that the effectiveness of a board depends on the optimal mix of inside and outside directions, there is little theory on the determinants of an optimal board composition (Hermalin & Weisbach 2002).” The study also revealed a likely optimal board size range where mean ROA levels ranging from board size 8 to 11 are higher than overall mean ROA for the sample. This signals a range of optimum board size (8-11) feasible for good firm performance. A majority of the firms in the study also had a board structure that follows a two-tier structure [separate executive and non-executive boards]. Significantly, firm performance (using ROA or Size) is found to be better in firms with the two-tier board structure (Kyereboah-Coleman, Adjasi, Abor 2006 –2007). Although the researchers in this study found an “optimal” board size for good corporate performance researchers did not include exogenous factors such as candidate selection bias, economic business cycles, tempo of regulatory change or include an empirical analysis of risk processes used by the board(s) to achieve “good” corporate performance. Corporate governance involves responding to a range of internal factors as well as external stakeholders who bring influence on board performance. The limitations of this study demonstrate that a correlation of variables alone does not prove causation of performance. Additional research is needed to better define predictive measures of enhanced corporate governance and risk performance. These topics exceed the scope of this study however limited empirical research on board risk committees and the risk function presents an opportunity for further advancements in board governance and enterprise-wide risk management.

SAGE Open, 2016

In recent years, expectations for increased risk governance have been placed explicitly on boards of directors. In response, boards are being held responsible for not only understanding and approving management’s risk management processes, but they are also being held responsible for assessing the risks identified by those processes as part of overseeing management’s pursuit of value. These increasing responsibilities have led a number of organizations to adopt enterprise risk management (ERM) as a holistic approach to risk management that extends beyond traditional silo-based risk management techniques. As boards, often through their audit committee, consider management’s implementation of ERM as part of the board’s risk oversight, a number of questions emerge that can be informed by academic research related to ERM. This article summarizes findings from ERM research to provide insights related to the board’s risk governance responsibilities. We also identify a number of research q...

2012

ACCA's international research programme generates high-profile, high-quality, cutting-edge research. All research reports from this programme are subject to a rigorous peer-review process, and are independently reviewed by two experts of international standing, one academic and one professional in practice. The Council of the Association of Chartered Certified Accountants consider this study to be a worthwhile contribution to discussion but do not necessarily share the views expressed, which are those of the authors alone. No responsibility for loss occasioned to any person acting or refraining from acting as a result of any material in this publication can be accepted by the authors or publisher.

The Board of Directors' role in risk governance has come to the highest focus, leading in changes of financial regulation. Management theories predicts that Board risk governance can benefit stakeholders by mitigating risk-related agency conflicts, this can be done by increasing value to shareholders. Effective Board risk practices which include reporting system and disclosure will results into sustainable environment for shareholders. Using the survey data on banking risk management processes, we examine the impact of Board risk governance practices on the bank's risk management processes. We find the place of Board risk governance responsibilities to be a major determinant of risk management effectiveness. Risk governance is conducted for economic reasons, the quality of Board governance practices has a direct positive relation with the effectiveness of risk management processes. Based on this foundation, this research paper describes Board risk governance practices in managing risk in selected commercial banks operating in the state of Karnataka.

2019

Academia, 2020

Corporate board risk and audit committee performance has been a "Black Box" that has lacked examination in existing research. Though there are extensive papers on corporate boards the measures of performance use trailing indicators, such as, board size, financial performance, or the role of unitary or tiered board structures. These studies assume that success is an attribute of board performance without concrete evidence of methods or processes that are accounted for in incremental improvement in performance. This study examines the measures of performance of board risk and audit committees and enterprise-wide risk management. Enterprise risk management was first established in 2004 by the committee of sponsoring organizations (COSO) and is credited with the growth of awareness of ERM globally. Boards have also advocated for enterprise risk effectiveness as the most effective approach to managing the risks of large, complex organizations. Sixteen years since the development of COSO ERM this paper sought to understand how organizations measure the performance of their risk management programs and how corporate board risk and audit committees measure the value and contributions of good risk management to organizational performance. The study was composed of two parts: 1) In the first part, an exhaustive literature review of corporate board's audit and risk committees role in corporate performance; 2) A global risk survey was simultaneously implemented to understand the evolution of risk leadership, advancements in risk tools and practice; and how risk professionals measure the performance of their own risk programs. The results found that ERM is still an evolving discipline with low adoption rates as a comprehensive enterprise-wide risk management program. Further, there is little evidence, other than anecdotal, of leading risk management practice or measures of performance attributed to risk reductions that accrete to corporate performance.