2.2 The link between risk management practices and corporate governance regulation

Question 1

What is corporate governance?

Answer 1

The system and related processes by which an organisation is directed and controlled.

Question 2

One key link between corporate governance and risk management is the i________ and c______ of sources of risk that may support or threaten the establishment and achievement of an organisation’s o_________.

Answer 2

identification
control
objectives

Question 3

What four types of risk could affect an organisation’s ability to meet its objectives?

Answer 3

Risks to going concern (financial stability)
Risks to non-financial needs of stakeholders such as health and safety
Risks to reputation (major scandals)
Risks to business continuity (loss of a service provider

Question 4

Good governance should effectively m______, not e_________ risk.

Answer 4

manage

eliminate

Question 5

As the effects of risk can never be completely eliminated, organisations need to build both r_________ and a_______ in their activities to respond to changes in circumstances and deal with unforeseen events.

Answer 5

resilience

agility

Question 6

The Volkswagen emissions scandal (2015) is an example of risk control related governance failure, leading to major negative publicity. What were the events of this scandal?

Answer 6

Staff within VW developed an electronic “defeat” device, allowing certain cars to provide false emission results, making them appear more environmentally friendly than they were.

VWs risk management controls were inefficient to prevent such staff misconduct.

Question 7

A link between governance and risk management is the “directed” element of governance. What do we mean by this?

Answer 7

The ability of the board and senior management to appropriately determine the strategic objectives of an organisations, they need to properly understand the environment within which it operate, the capabilities of the organisation and how to exploit opportunities.

Question 8

Good governance should ensure long-term s_____________ where value is generated through exploitation of o_____________ that contribute to the organisation’s mission but which do not create excessive r____.

Answer 8

sustainability
opportunities
risk

Question 9

The Kodak failure demonstrates that failure to exploit opportunities can be as serious as a failure to manage risk. What were the events of the Kodak corporate failure?

Answer 9

Kodak was the market leader in photography prior to its invention of digital photography. Despite inventing digital photography, Kodak failed to develop this new technology into a marketable product, and instead continued to focus on traditional film products. With more effective risk management, Kodak ay have been able to exploit the risk related to digital photography.

Question 10

UK FRC:

“Good s__________ by the board should not inhibit sensible risk taking that is critical to g______. However, the assessment of risks as part of the normal business planning process should support better decision-taking, ensure that the board and management respond promptly to risks when they arise, and ensure that s__________ and other stakeholders are well informed about the principal risks and prospects of the company.”

Answer 10

stewardship
growth
shareholders