Ch. 5: Holistic Risk Management

Question 1

Corporate governance purpose

Answer 1

ensure org’s management and BOD act with the best interest of owners in mind

Question 2

Two primary responsibilities of boards

Answer 2

1. oversee major managerial decisions

2. protect shareholder interests

Question 3

Typical board size

Answer 3

8-20 directors

Question 4

BOD risk management responsibilities (4)

Answer 4

1. Monitor key risk exposures
2. Define risk governance approach
3. Culture of risk management
4. Oversight of ERM program

Question 5

Chief Risk Officer (CRO) participates directly with ___

Answer 5

the BOD

Question 6

Risk Champion

Answer 6

Individuals at manager level who facilitate risk discussions and implement risk management processes

Question 7

BOD reports to/serves the

Answer 7

Shareholders

Question 8

Are there benefits to separating ownership of an organization from control of an organization?

Answer 8

Yes

Question 9

The board has a role of:
A. Control
B. Oversight

Answer 9

Oversight

Question 10

Aligning corporate decision makers with shareholder interests reduces __ costs

Answer 10

Agency

Question 11

How are board directors chosen?

Answer 11

Elected by shareholders

Question 12

Difference between board level and executive level committees

Answer 12

Board-level oversee org’s overall risk management program; executive level manage risk details and report findings to the board

Question 13

Organizations are increasingly creating chief risk officer (CRO) positions. Which one of the following statements is correct with respect to CROs?

A. Typically, a CRO analyzes, measures, and monitors risk; compiles reports; and facilitates risk workshops without the need for staff.
B. The CRO’s rank and importance to the board of directors are equal to those of the organization’s other executive officers.
C. CROs’ roles are relatively standardized from industry to industry; they focus primarily on measuring and controlling risk.
D. A 2012 survey indicated that, in companies with annual revenue greater than $20 billion, fewer than 20% had created a CRO position.

Answer 13

B. CRO’s rank and importance to BOD are equal to other executive offiers

Question 14

Some best practices models call for the formation of a risk committee with a risk management focus at the organization’s executive management level. Which one of the following statements best describes one of the responsibilities of an executive-level risk committee?

Select one:
A. To monitor the organization’s compliance with established risk limits and how noncompliance is addressed
B. To oversee exposures of the organization’s critical risks and advise the board on risk strategy.
C. To approve the organization’s risk management strategies, including their design and implementation.
D. To assist the board in establishing the organization’s risk appetite and risk tolerance levels

Answer 14

C. To approve the org’s risk management strategies, including their design and implementation

Question 15

Which one of the following categories of agency costs is assumed by managers?

A. Advertising costs
B. Bonding costs
C. Incentive alignment costs
D. Monitoring costs

Answer 15

B. Bonding costs