Risk management and corporate governance must involve an integrated approach to risks. There is no doubt that businesses have entered an era of uncertainty. This context has influenced everyone’s vision about risk.
Integrated risk methods
Risk managers have often tended to focus on specific risks, mainly operational risks. Risk management was rarely applied in a systematic and integrated way to society as a whole. This risk management approach that protects against certain risks has one major disadvantage: it does not allow businesses to have an active risk management strategy across all activities.
The environment and, therefore, the keen awareness of risks has changed the minds of risk managers and pointed them towards a more integrated approach to risk management. This also seems to correspond to the partnership vision of corporate governance. For the longest time, studies on the governance of the company favored the financial or shareholder approach of the company.
Small company? No problem
If you own a small company, risk management can be reduced to just two type of people: shareholders and the owner. This approach has shown its limits regarding corporate performance. Thus, everyone agrees today to involve everyone in the company and all stakeholders. Corporate risk management leads to broadening the scope of all people involved.
Integrated approaches to corporate governance
Two conceptions of management are often presented: the financial and partnership strategy. The monetary approach favors the relationship between the shareholders and the manager in the context of an agency relationship. In this, shareholders take the risk of committing their capital. They expect a return on investment.
The role of the corporate governance system will be to focus on the profitability of financial investment. In this case, the shareholders transfer their risks for compensation to the managers. It is mandatory to protect the significant financial players from financial, informational, misappropriation, overpayment, asset devaluation, market, capital loss, bankruptcy and strike risks. But faced with the complexification of the corporate environment and the emergence of several players in the sphere of the company, the company faces a variety of risks that go beyond the strict financial framework.
A business is not just about meeting shareholder interests. The value created by the company also contributes to human, organizational and commercial capital. Call David Johnson Cane Bay to learn more.