Systematic approach to Control and Risk Management

How Using a systematic approach to Control and Risk Management can enable companies to fulfill the core aims of Corporate Governance


Core Aims of Corporate Governance are:
1. Ensuring integrity
2. Promotion of strategic objectives
3. Control over companies
4. Enhancing risk management
5. Involvement of shareholders
6. Protection of shareholders and stakeholders
7. Establishment of accountability
8. Maintenance of effective scrutiny
9. Provision of accurate and timely information


Ensuring Integrity

The problem that an organization may face as a result of the lack of integrity of its staff should be part of the risk assessment processes. Risk such as probity risks are significant risks which should be assessed and managed. An important aspect has been stressing the role of directors in influencing the culture, tone and core value of the company.


Promotion of strategic objectives

Guidance in risk management models stresses the need for risk management to be aligned with the strategic objectives. Most risk management models have objective setting as s key stage.


Control over companies

Risk management models emphasize the importance of companies building into their systems the need to follow governance guidance. Two of the four types of objectives in the COSO framework are reliability of reporting and compliance with applicable laws and regulations.


Enhancing risk management

Key feature of risk management model is that they demonstrate how risk management is a continual process. Models show the need to assess organization-wide risks and also specific process or unit risks. They are also used to assess the interaction between risks. Models show that risk management is a logical process, taking the organization through initial risk identification, then identification of events that may cause risks to crystallize, assessment of how great losses might be and in the light of these how best to respond to risks. This will help to identify who should be responsible for which aspects of risk management.


Involvement of shareholders

All risk management models have information provision as a key stage, and this includes information provision to shareholders. Australia and New Zealand Standard on risk management has communication and consultation as an underlying stage of its risk management model, reflecting the requirement in governance reports for communication with major stakeholders.


Protection of shareholders and stakeholders

Risk management models aim to reinforce the protection given to shareholders and other stakeholders. Adopting a systematic approach to risk management should make sure that the risks for investors are at appropriate levels, given the strategic objectives of the company. Effective risk management should mean that the directors are not reckless in their decisions, and consider the risk of solvency problems very seriously.


Establishment of accountability

Risk management models reinforce the idea that clear organizational structures strengthen governance. Responsibility for decision-making is a key part of the internal environment of organizations. Some risk management models emphasize the responsibilities of specific individuals, for example CIMA’s model stresses the need to establish a risk management group. Other models build in decision-making as a key stage


Maintenance of effective scrutiny

Models emphasize the importance of monitoring risk management procedures and controls once they are in place. The feedback from this monitoring will impact upon future risk assessments and also lead to continuous improvements in processes. Some models, for example the CIMA model, emphasize this by showing risk management as a circular process.


Provision of accurate and timely information

As indicated, information provision is a key stage of risk management models. The CIMA model puts information for decision-making at the centre of the model, with all the risk management stages feeding into it.




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