Home / Summaries / Class notes - Part 1: Foundations of Risk Management / risk-board-management

Corporate Governance and Risk Management

7 important questions on Corporate Governance and Risk Management

What is SOX (Sarbanes-Oxley Act of 2002)?

A response to series of accounting and management scandals. Placing primary responsibility of accuracy in financial statements to CEO and CFO. They have to make sure that financial statements don't contain untrue statements or omit any material fact. Moreover, they bear responsibility for design, establishing and maintaining disclosure controls and procedures (assess annually). There should also be a critical audit committee consisting of financial experts.

What are main corporate governance concerns?

- Stakeholder priority (controlling tail risk, but also downside risk for other stakeholders)
- Board composition (independence, engagement and expertise)
- Board risk oversight (educating board, risk responsibilities and empowerment)
- Risk appetite (willingness to take risk, enterprise-wide risk limits  
- Compensation (deferred payment to long-term, less bonuses)

What is the relation between corporate governance and risk management?

Agency risk, can cause a conflict of interest for management in boosting returns while assuming risks, and the interests of the company's long-term stakeholders. Powerful and charismatic CEO should be prevented. Therefore the board and management committee increasingly look to the CRO to integrate corporate governance responsibilities with the existing risk function's. Basel requires CRO's to report and have direct access to the board without impediments.
  • Higher grades + faster learning
  • Never study anything twice
  • 100% sure, 100% understanding
Discover Study Smart
Testimonial person
Sophia
Law student
Quotes

For my 1st exam I got a C. Then, I started looking for ways to learn better and I came across Study Smart. Since then I have scored a A+, A, A- and another A. I highly recommend it to everyone who wants to hear it. I am so happy with it!!

Testimonial person
John
Economics Student
Quotes

I was struggling to finish all my first-year subjects for 3 years. Then I discovered Study Smart, which helped me to finish all of them within 3 months.

Testimonial person
Sara
Public Administration Student
Quotes

Because of StudySmart, things are going well in many ways. Before, I always had study stress and no time for anything. Now I feel calm and confident (because of the program). I used to score a B, now I usually score an A or A+.

Testimonial person
Mary
Business Student
Quotes

Hey Chris, I really want to thank you very much for developing the platform, I usually got around C for my exams, now I scored an A+, an A and a A- !!

Testimonial person
Melanie
Psychology Student
Quotes

Since using Study Smart, my average has increased significantly. I even completed a statistics course with a A+ while I'm bad at statistics. I took on extra courses this year, because of Study Smart. Thanks so much!

Testimonial person
Jane
Nursing Studies
Quotes

Ever since I started studying with StudySmart I passed all my exams !!! No more re-sits!! At first, I was happy with a pass and now I only get good grades. Many thanks!

Testimonial person
Rose
Political Science Student
Quotes

I aced all the courses I studied with Study Smart. For law, I first scored a D, and now an A! I’m 100% sure that I’ll pass all the courses I study with Study Smart.

Testimonial person
Tina
Medicine Student
Quotes

I always thought I studied well. My grades were fine. I could never have imagined that applying these study skills would have such a huge and direct impact on my grades, my speed and the pleasure I have in learning.

Testimonial person
Julie
Marketing Student
Quotes

For the first time, I finally feel totally confident about the way I learn. I have the perfect overview and make great progress in terms of speed and the grades I get. Thanks, Chris!

Testimonial person
Matt
Industrial Engineering Student
Quotes

I immediately started to enjoy learning again, and my grades soared. All of a sudden, everything went better. I highly recommend Study Smart to all students..

Testimonial person
Emma
Law Student
Quotes

Being able to create my materials online made the process of studying so much smoother and quicker. I no longer have to spend a huge amount of my time on creating my summaries.

Testimonial person
Michael
Psychology Student
Quotes

At first, my notes were a mess. Now I use Study Smart to take my notes in a perfectly structured way. It helps me to save a lot of time and do other things I enjoy.

Testimonial person
Emily
Teacher
Quotes

Students that study with Study Smart get better grades. The system applies all the learning methods in such a way that both well-performing students and students who struggle perform much better.

Testimonial person
Richard
Literature Student
Quotes

Hi Chris, I would like to thank you very much. Last year I scored C on a course, and this year I got an A+ thanks to your method! Thank you very much!

Testimonial person
Madison
Parent
Quotes

The largest effect is that my child is more enthusiastic about school! Every parent wants their children to be happy at school, Study Smart made it happen.

Testimonial person
Robert
Accountant Student
Quotes

In high school, I failed several exams, and that has really changed now. I actually needed this tool very much back then. Since I started studying with StudySmart, I haven't had any D's. My average score is now an A and those are results I would have never had in the past

Testimonial person
James
Business and Science Student
Quotes

With my old method, I passed only 3 out of 8 courses. Since I started taking my notes digitally in Study Smart, I have passed all my courses on the first try. For me, StudySmart takes away the stress of wondering if I will pass or not.

Testimonial person
Christopher
Veterinarian Student
Quotes

Thanks to StudySmart, I passed all my exams, and with better grades than before! On top of that, I have mastered a very good study method now, which I am confident will help me earn my degree.

What other levers does the board has to ensure proper risk management?

Establish strong ethical standards and work to ensure that it understands the degree to which management follows them. Consider performance metrics and compensation strategy, by risk-adjusted performance. Board members should demonstrate healthy skepticism and require information from a cross section of knowledgeable and reliable sources (as CEO, directors, auditors). It must make sure that risk management is functioning properly.

What has changed since 2008? More educated board members on risk issues, also those who are in risk committees to have technical sophistication. Clearly separate audit and risk committees.

What are different mechanisms for transmitting risk governance?

Important role for risk- and audit committees to ratify the key policies and associated procedures of the bank's risk management activities. They help to set limits that flow down through the bank's executive officers and business divisions.

What about a risk management committee?

Independently reviewing the identification, measurement and controlling of risks, including adequate policy guidelines and systems. It usually has the delegated authority from the board to approve individual credits above a certain limit, which it will report to the board. Any other special cases that require attention from the board.

What about a compensation committee?

Stock ownership can also encourage risk-taking, as shareholders'gain are not limited on the upside, while their losses are capped on the downside. Compensation schemes used to be structured like a call option! Nowadays it is more aligned with long-term interest of shareholders and other stakeholders, as well as based on a risk-adjusted return on capital. No guaranteed bonuses anymore and exposure to downside.

EU regulators have adopted a cap on bankers' bonuses at one times their salary. Twice, only if shareholders voted with 2/3 majority.

Try our study magic for free

a PDF, study it super fast
  • No sign up, email or credit card needed!
  • AI makes unlimited flashcards
  • Get unlimited quizzes and tests
  • Ask AI anything
Create a notebook
  • No sign up, email or credit card needed!
  • Have and keep perfect overview
  • Make flashcards, notes and mind maps
  • Review, test and score!

The question on the page originate from the summary of the following study material:

Part 1: Foundations of Risk Management

View summary
  • A unique study and practice tool
  • Never study anything twice again
  • Get the grades you hope for
  • 100% sure, 100% understanding
Remember faster, study better. Scientifically proven.
Trustpilot Logo

Summaries related to Corporate Risk Management: A Primer