The concept of corporate governance has recently become part of the scope of risk managers’ analysis (Jalilvand & Malliaris 2013). For instance, issues related to benefits, compensation packages and incentives that employees are entitled to in contemporary organisations often become the focus of discussion. The potential negative effects that the provision of extensive compensation packages and benefits may have on the financial well-being of the organisation need to be mentioned as a primary reason for concern.
We will write a custom Report on Risk Management as an Element of Corporate Governance specifically for you
301 certified writers online
First and most obvious, there is credit risk, which means that the financial partner may fail to meet the obligations set out in the agreement. Although this type of risk may not cause the immediate bankruptcy of the project, it clearly poses a threat to the overall success of the venture. For example, it is likely to cause the organisation to reconsider its current approach toward resource allocation, neglecting an essential part of its operations in order to remain afloat and address emerging financial concerns. Since the success of the entire project hinges on the credit risk, it needs to be addressed immediately.
Similarly, the liquidity risk must be mentioned as a direct effect of the corporate governance factor. With an equal distribution of corporate assets between all of the stakeholders involved, the liquidity rates may drop significantly. The residual risk is also likely to pose a threat to the performance of the company. With the principles of corporate governance as the primary guidelines of operating the organisation, the approaches toward risks identification and elimination are going to be generic. Thus, there will always be a possibility of overlooking a specific risk.
Operational risks should also be mentioned among the essential threats which the company must take into account. For example, the failure of employees or other organisational members to report the most important emerging issues and the latest problems promptly needs to be mentioned. Although the corporate governance framework implies that the data management process should occur in the environment of information sharing, there is always a threat that the necessary information will be misinterpreted or not delivered.
Finally, legal risks have to be listed among the crucial concerns to be addressed. Although the corporate governance framework implies that the organisation’s members should be capable of exerting influence on the staff members, supervising every single team is not possible. Therefore, there is a risk that some of the employees will resort to fraudulent activities (Gitman, Joehnk, & Billingsley 2013).
The problems listed above undermine the very foundation of corporate ethics and values. Therefore, they must be addressed urgently. These issues are likely to have implications of tremendous magnitude on both the company and the community. For instance, the risk of corporate fraud may launch a plague of similar fraudulent actions in the context of the global economy. Similarly, if left unattended, the operational risks are likely to grow out of proportion, affecting the process of information management on a range of levels. For instance, communication between the company and other organisations may be hindered unless innovative tools are incorporated into the company’s design. Furthermore, it will be necessary to educate the staff members about using IT tools for successful communication. By training the staff in this way, the potential for misinterpreting data and thereby bringing down the company’s performance rates will be significantly reduced.
Gitman, L J, Joehnk, M D, & Billingsley, R 2013, Personal financial planning, Cengage Learning, Stamford, CT.
Jalilvand, A & Malliaris, T 2013, Risk management and corporate governance, Routledge, New York, NY.