Ch. 5: Holistic Risk Management Flashcards
Corporate governance purpose
ensure org’s management and BOD act with the best interest of owners in mind
Two primary responsibilities of boards
- oversee major managerial decisions
2. protect shareholder interests
Typical board size
8-20 directors
BOD risk management responsibilities (4)
- Monitor key risk exposures
- Define risk governance approach
- Culture of risk management
- Oversight of ERM program
Chief Risk Officer (CRO) participates directly with ___
the BOD
Risk Champion
Individuals at manager level who facilitate risk discussions and implement risk management processes
BOD reports to/serves the
Shareholders
Are there benefits to separating ownership of an organization from control of an organization?
Yes
The board has a role of:
A. Control
B. Oversight
Oversight
Aligning corporate decision makers with shareholder interests reduces __ costs
Agency
How are board directors chosen?
Elected by shareholders
Difference between board level and executive level committees
Board-level oversee org’s overall risk management program; executive level manage risk details and report findings to the board
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.
B. CRO’s rank and importance to BOD are equal to other executive offiers
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
C. To approve the org’s risk management strategies, including their design and implementation
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
B. Bonding costs
