Impact of corporate governance on firm performance publishedMuhammad Usman
In the light of corporate financial scandals, there is an increasing attention on corporate governance issues. The investors look for emerging economies to diversify their investment portfolios to exhaust the possibilities of returns. This paper examines the impact of corporate governance variables on firms’ performance. This Research found that there is a direct positive relationship between profitability measured either by Earnings per share (EPS) or Return on assets (ROA) and corporate governance, also have a positive direct relationship between each of liquidity, dividend per share, and the size of the company with corporate governance, finally the study found a positive direct relationship between corporate governance and corporate performance. Various studies have been conducted in developing countries including Pakistan to investigate the relationship among corporate governance and firm performance. This study indicates that corporate governance can be measured through the following elements.
(1) board size (2) Female Member (3) CEO duality (4) Education of Directors (5) Board working experience(6) independent directors (7) board compensation (8) Board ownership (9) Audit committee (10) Board composition(11)Leadership Structure
Impact of corporate governance on firm performance publishedMuhammad Usman
In the light of corporate financial scandals, there is an increasing attention on corporate governance issues. The investors look for emerging economies to diversify their investment portfolios to exhaust the possibilities of returns. This paper examines the impact of corporate governance variables on firms’ performance. This Research found that there is a direct positive relationship between profitability measured either by Earnings per share (EPS) or Return on assets (ROA) and corporate governance, also have a positive direct relationship between each of liquidity, dividend per share, and the size of the company with corporate governance, finally the study found a positive direct relationship between corporate governance and corporate performance. Various studies have been conducted in developing countries including Pakistan to investigate the relationship among corporate governance and firm performance. This study indicates that corporate governance can be measured through the following elements.
(1) board size (2) Female Member (3) CEO duality (4) Education of Directors (5) Board working experience(6) independent directors (7) board compensation (8) Board ownership (9) Audit committee (10) Board composition(11)Leadership Structure
Enterprise Risk Management and SustainabilityJeff B
An overview of our endeavors at implementing ISO 31000 enterprise risk management and the importance of establishing good risk culture within the company.
Effect of Enterprise Risk Management on Sustainable Financial Performance of ...AJSERJournal
The paper is aimed at determining the effect of Enterprise Risk Management (ERM) on Sustainable
financial performance of deposit money banks in Nigeria. The specific objectives of the research is to determine the
effect of ERM on earning per share (EPS) and to ascertain the effect of ERM on Tobin Q. Descriptive research design
was adopted for the study considering the total population of all the twenty-one listed deposit money banks in Nigeria.
Data were gathered via secondary source from five (5) public annual reports of the listed deposit money banks for a
period of six years ranged from 2013-2018 and analysed using percentages and ratios. Multiple regressions was
employed in data analysis and testing the hypotheses; in determining if there is a significant effect of Enterprise Risk
Management on Earnings per Share and Tobin Q of listed deposit money banks in Nigeria. The study revealed that
there is a positive and significant relationship between ERM (Firms Size, Leverage) and sustainable financial
performance (TQ & EPS) of listed deposit money banks in Nigeria. Based on the findings, the study recommends that
financial institutions in Nigeria should employ robust Enterprise Risk Management Practices as these are likely to
greatly influence their financial performance in one way or the other and that Central Bank of Nigeria and other
regulators should endeavour to strengthen the enforcement of risk control mechanism to boost a robust bank
performance.
This handbook is aimed at assisting those on the governing body of an organisation to: • gain clarity about the interaction of governance and risk management • avoid confusion in the responsibilities of those with an oversight role and those with an implementation role • achieve focus on embedding risk management within the strategic framework. ISO 31000:2009 Risk Management—Principles and guidelines and the related handbook, HB 436:2004 Risk management guidelines—Companion to AS/NZS ISO 31000:2009 deal with the implementation aspects of a risk management framework, and will assist entities to focus on operational risk management. Governance Institute’s publication Enterprise Risk Management1 also provides a framework for approaching the implementation of risk management. This handbook deals with the link between the deliberations of boards and their oversight of management and the alignment of risk management practices with strategic objectives throughout the organisation. This guide is not intended to advise directors on how to create an enterprise risk management system or a technical management-led risk process — these are more suited to development by management. It is intended to assist boards to integrate their governance and risk management frameworks. This in turn will assist organisations to achieve strategic focus, by providing boards with the information they need and ensuring ongoing ownership of risks by all employees in relation to achieving strategic objectives. The questions that conclude each section are included for consideration and to prompt directors’ thinking. Directors will need to decide if they are relevant to their circumstances.
C-Suite’s Guide to Enterprise Risk Management and Emerging RisksAronson LLC
Significant opportunities remain for organizations to continue to strengthen their approaches to identifying and assessing key risks. This program will provide an overview of Enterprise Risk Management (ERM) best practices and current emerging risks that should be on your radar for 2018.
Watch the complete webinar here: https://aronsonllc.com/c-suites-guide-to-enterprise-risk-management-and-emerging-risks/?sf_data=all&_sft_insight-type=on-demand-webinar
corporate governance and role in strategic managementzeba khan
describes the concept of corporate governance along with need and benefits of corporate governance. highlights the role and importance of corporate governance in strategic management.
Enterprise Risk Management (ERM) is the process of planning, organizing, leading, and controlling the activities of an organization in order to minimize the effects of risk on an organization's capital and earnings.
Enterprise Risk Management expands the process to include not just risks associated with accidental losses, but also financial, strategic, operational, and other risks.
In recent years, external factors have fueled a heightened interest by organizations in ERM.
Industry and government regulatory bodies, as well as investors, have begun to scrutinize companies' risk-management policies and procedures.
In an increasing number of industries, boards of directors are required to review and report on the adequacy of risk-management processes in the organizations they administer.
Since they thrive on the business of risk, financial institutions are good examples of companies that can benefit from effective ERM.
Their success depends on striking a balance between enhancing profits and managing risk.
In order for any enterprise to properly, effectively, and prudently manage their future growth, Business Strategy needs to be sustained by modern Enterprise Risk Management (ERM) principles and practices.
The Enterprise Risk Management discipline is not anymore a separate management profession or kinky management way, but rather it is a core competency that all organizations and executives must have in this Global Age. It should be a way of life for all.
Corporate Governance Definition and PracticeBolaji Okusaga
The recent failures of erstwhile strong institutions has thrown up the importance of Corporate Governance in the running of businesses and the drive for investments. This presentation attempts a basic definition the term and also x-rays practices and processes for sound corporate governance.
Enterprise Risk Management and SustainabilityJeff B
An overview of our endeavors at implementing ISO 31000 enterprise risk management and the importance of establishing good risk culture within the company.
Effect of Enterprise Risk Management on Sustainable Financial Performance of ...AJSERJournal
The paper is aimed at determining the effect of Enterprise Risk Management (ERM) on Sustainable
financial performance of deposit money banks in Nigeria. The specific objectives of the research is to determine the
effect of ERM on earning per share (EPS) and to ascertain the effect of ERM on Tobin Q. Descriptive research design
was adopted for the study considering the total population of all the twenty-one listed deposit money banks in Nigeria.
Data were gathered via secondary source from five (5) public annual reports of the listed deposit money banks for a
period of six years ranged from 2013-2018 and analysed using percentages and ratios. Multiple regressions was
employed in data analysis and testing the hypotheses; in determining if there is a significant effect of Enterprise Risk
Management on Earnings per Share and Tobin Q of listed deposit money banks in Nigeria. The study revealed that
there is a positive and significant relationship between ERM (Firms Size, Leverage) and sustainable financial
performance (TQ & EPS) of listed deposit money banks in Nigeria. Based on the findings, the study recommends that
financial institutions in Nigeria should employ robust Enterprise Risk Management Practices as these are likely to
greatly influence their financial performance in one way or the other and that Central Bank of Nigeria and other
regulators should endeavour to strengthen the enforcement of risk control mechanism to boost a robust bank
performance.
This handbook is aimed at assisting those on the governing body of an organisation to: • gain clarity about the interaction of governance and risk management • avoid confusion in the responsibilities of those with an oversight role and those with an implementation role • achieve focus on embedding risk management within the strategic framework. ISO 31000:2009 Risk Management—Principles and guidelines and the related handbook, HB 436:2004 Risk management guidelines—Companion to AS/NZS ISO 31000:2009 deal with the implementation aspects of a risk management framework, and will assist entities to focus on operational risk management. Governance Institute’s publication Enterprise Risk Management1 also provides a framework for approaching the implementation of risk management. This handbook deals with the link between the deliberations of boards and their oversight of management and the alignment of risk management practices with strategic objectives throughout the organisation. This guide is not intended to advise directors on how to create an enterprise risk management system or a technical management-led risk process — these are more suited to development by management. It is intended to assist boards to integrate their governance and risk management frameworks. This in turn will assist organisations to achieve strategic focus, by providing boards with the information they need and ensuring ongoing ownership of risks by all employees in relation to achieving strategic objectives. The questions that conclude each section are included for consideration and to prompt directors’ thinking. Directors will need to decide if they are relevant to their circumstances.
C-Suite’s Guide to Enterprise Risk Management and Emerging RisksAronson LLC
Significant opportunities remain for organizations to continue to strengthen their approaches to identifying and assessing key risks. This program will provide an overview of Enterprise Risk Management (ERM) best practices and current emerging risks that should be on your radar for 2018.
Watch the complete webinar here: https://aronsonllc.com/c-suites-guide-to-enterprise-risk-management-and-emerging-risks/?sf_data=all&_sft_insight-type=on-demand-webinar
corporate governance and role in strategic managementzeba khan
describes the concept of corporate governance along with need and benefits of corporate governance. highlights the role and importance of corporate governance in strategic management.
Enterprise Risk Management (ERM) is the process of planning, organizing, leading, and controlling the activities of an organization in order to minimize the effects of risk on an organization's capital and earnings.
Enterprise Risk Management expands the process to include not just risks associated with accidental losses, but also financial, strategic, operational, and other risks.
In recent years, external factors have fueled a heightened interest by organizations in ERM.
Industry and government regulatory bodies, as well as investors, have begun to scrutinize companies' risk-management policies and procedures.
In an increasing number of industries, boards of directors are required to review and report on the adequacy of risk-management processes in the organizations they administer.
Since they thrive on the business of risk, financial institutions are good examples of companies that can benefit from effective ERM.
Their success depends on striking a balance between enhancing profits and managing risk.
In order for any enterprise to properly, effectively, and prudently manage their future growth, Business Strategy needs to be sustained by modern Enterprise Risk Management (ERM) principles and practices.
The Enterprise Risk Management discipline is not anymore a separate management profession or kinky management way, but rather it is a core competency that all organizations and executives must have in this Global Age. It should be a way of life for all.
Corporate Governance Definition and PracticeBolaji Okusaga
The recent failures of erstwhile strong institutions has thrown up the importance of Corporate Governance in the running of businesses and the drive for investments. This presentation attempts a basic definition the term and also x-rays practices and processes for sound corporate governance.
Corporate Governance Mechanisms 3
Corporate Governance is the process through which companies are governed in order to maximize performance and profits as well as manage and monitor risks. (Monks, 2003) Accountability and transparency especially to stakeholders and shareholders is an indication of good governance. Corporate governance seeks to promote accountability, transparency and corporate fairness. It ensures shareholders’ interests are protected, transparency and accountability in business transactions is applied, compliance to legal and statutory requirements, adequate disclosures, ethical business conduct, and effective decision making. Corporate governance, in other words, recognizes the shareholders as the owners of the business and the company’s role as stewards and trustees to the business. In this regard, the company’s actions are geared towards benefiting the greatest number of stakeholders.
Companies are required to fully understand their responsibilities and the impact of their actions on the environment and society at large. This involves the establishment of roles and responsibilities among the company employees. The employees are then expected to be accountable and answerable to one or more people. In addition to this, there needs to be a clear system of communication flow, control and supervision. The company is not only expected to offer financial accounting but also social and environmental accounting. This entails a thorough analysis into the firm’s activities and their impacts on the company, its shareholders, the environment and society in order to achieve sustainable development. Sustainability, ethical and financial issues are directly linked to governance.
Corporate governance also requires good risk analysis and management. The board especially must understand the full impacts and risks involved in the activities and strategies undertaken by the company. They are required under corporate governance, to thoroughly analyze the risks involved in such strategies and their impact on the company, the environment and society before they approve of them. This should be followed by adequate monitoring of the implementation, reporting, accounting and audit. (Belimoria, 1994)
Corporate governance is a requirement for all companies listed in the London Stock Exchange. Given the nature and functions of corporate governance, it would be expected that these companies would thrive and experience improved performance. (Gugler, 2001) Recently however, the 20008/2009 global financial crisis saw the collapse of several companies including many high profile banks. (Himick, 1998) The media attributed these failures to lack of adequate corporate governance mechanisms yet these debacles continued to take place even after the company governance was put in the lime light. While it appears that in many cases, the comp.
Failure deriving from underestimating risk managementPECB
What is risk? Why are organizations concerned with it?
Whether it is driving, taking a shower or just going at the grocery store, everyone exposes themselves to risk. Organizations face internal and external risks that endanger the possibility of achieving their goals and objectives. As the world becomes more unpredictable, the concept of risk has turned into a major concern to professionals of different industries. According to ISO 31000, risk is the effect of uncertainty on objectives. In addition, risk management is the process of identifying, analyzing, and prioritizing risks. The goal of risk management is to manage risks before they affect the organization.
Running Head ERM 1ERM 10Research Paper Draf.docxjeanettehully
Running Head: ERM 1
ERM 10
Research Paper Draft
ITS835 – Enterprise Risk Management
Dr. Jerry Alsay
University of the Cumberlands
Introduction
Risk can be explained as a combination of diverse things or activities that a person, a group or organization is doing knowing that they might experience hardships and have knowledge on what they expect but do it anyway since there is a possibility of success. Risk management is a process that assist the organizations to comprehend what are the risk they are anticipating, who might experience the risk, what are the possible control for the risk and making a conclusion on whether these control are adequate or are they not adequate.
Enterprise risk management is explained as the process of organizing, planning, controlling and leading the actions of an enterprise for them to reduce the impacts of risks on the enterprise earnings and capital. The enterprise risk management comprises of strategic, operational and financial risk connected to the accidental losses. Recently, there have been external factors that has encouraged organizations to implement the use of ERM. Government regulatory and industries have started scrutinizing organizations risk management procedures and policies and a rising number of industries, BOD are needed to evaluate and report the relevance of risk management processes in the companies they facilitate.
Organizations might gain by transforming the corporate culture to focus more on overall risk minimization from the aim of meeting IT obligations. Most of the organizations have discovered that ERM has the ability to offer new competitive advantage which has made most organizations to implement ERM. ERM is one of the major achievement that most of the organizations are striving to implement. This paper will focus on discussing the background understanding of ERM, the advantages of ERM and the implementation of ERM in organizations.
Background
There exist diverse ways in which most organization respond to hazards and some doubt the utilization of ERM. However, there are some organization that currently understand the importance of implementing ERM to their organizations. Just like other transformation processes happening inside an organizations, ERM offers an opportunity for the financial and management accounting professional to change how they are viewed by other companies (Waseem et al., 2017). Through becoming a strategic partner with the ERM adoption, the company can see the “bean sprouters” of the new administrative initiative other than just “bean counters.” When organizations implement ERM they can transform from just being the custodians and historians of accounts to becoming futuristic thinkers. Organizations can transform and become couches as well as players in the new management initiative necessary to the future of the company well-being.
When adopting a good ERM based system inside an organization, technology participates a v ...
Running Head ERM 1ERM 10Research Paper Draf.docxtodd271
Running Head: ERM 1
ERM 10
Research Paper Draft
ITS835 – Enterprise Risk Management
Dr. Jerry Alsay
University of the Cumberlands
Introduction
Risk can be explained as a combination of diverse things or activities that a person, a group or organization is doing knowing that they might experience hardships and have knowledge on what they expect but do it anyway since there is a possibility of success. Risk management is a process that assist the organizations to comprehend what are the risk they are anticipating, who might experience the risk, what are the possible control for the risk and making a conclusion on whether these control are adequate or are they not adequate.
Enterprise risk management is explained as the process of organizing, planning, controlling and leading the actions of an enterprise for them to reduce the impacts of risks on the enterprise earnings and capital. The enterprise risk management comprises of strategic, operational and financial risk connected to the accidental losses. Recently, there have been external factors that has encouraged organizations to implement the use of ERM. Government regulatory and industries have started scrutinizing organizations risk management procedures and policies and a rising number of industries, BOD are needed to evaluate and report the relevance of risk management processes in the companies they facilitate.
Organizations might gain by transforming the corporate culture to focus more on overall risk minimization from the aim of meeting IT obligations. Most of the organizations have discovered that ERM has the ability to offer new competitive advantage which has made most organizations to implement ERM. ERM is one of the major achievement that most of the organizations are striving to implement. This paper will focus on discussing the background understanding of ERM, the advantages of ERM and the implementation of ERM in organizations.
Background
There exist diverse ways in which most organization respond to hazards and some doubt the utilization of ERM. However, there are some organization that currently understand the importance of implementing ERM to their organizations. Just like other transformation processes happening inside an organizations, ERM offers an opportunity for the financial and management accounting professional to change how they are viewed by other companies (Waseem et al., 2017). Through becoming a strategic partner with the ERM adoption, the company can see the “bean sprouters” of the new administrative initiative other than just “bean counters.” When organizations implement ERM they can transform from just being the custodians and historians of accounts to becoming futuristic thinkers. Organizations can transform and become couches as well as players in the new management initiative necessary to the future of the company well-being.
When adopting a good ERM based system inside an organization, technology participates a v.
2017 coso-erm-integrating-with-strategy-and-performance-executive-summaryVALUES & SENSE
This update to the 2004 publication addresses the evolution of enterprise risk management and the need for organizations to improve their approach to managing risk to meet the demands of an evolving business environment. The updated document, titled Enterprise Risk Management—Integrating with Strategy and Performance, highlights the importance of considering risk in both the strategy-setting process and in driving performance.
Due to the current instability in the business world, organizations should be able to anticipate changes and have coherent responses at hand to effective manage risks, create value, build good relations, increase profit and improve competitive positioning.
A report titled Exploring Strategic Risk issued in 2013 for Forbes Insights by Deloitte, contains some very important conclusions for the business community. 300 executives from around the world were interviewed for the study, in an attempt to find out their vision of the risk strategy and current changes and analysing how organizations should face these new challenges.
Sometimes it is difficult to link risks to a specific financial impact and not all data are pertinent to the evaluation of emerging risks. That's why companies have to be aware of internal risks and manage them well in order to be able to manage external risks and invest into strategic assets such as human capital, clients and innovation.
This insight explains the case of the financial services as the sector that less trust generates due to its short-sightedness, lack of values and lack of professional education that resulted in corruption and bad practices, which compromised the financial sector.
The report A Crisis of Culture: Valuing Ethics and Knowledge in Financial Services examines the role of integrity and knowledge in restoring culture in the financial services industry. The conclusions appear in the full version of this document.
The financial industry is just one example in the wider panorama. Lack of values is widespread and creates significant risks. Bad practices trigger problems such as loss of profit, loss of reputation and even loss of shareholders, clients and employees.
The crisis, as well as the arrival of new technologies, urges companies to maintain their good practices and emphasize aspects as ethics, leadership, commitment, performance, transparency and sustainability.
The digital revolution and social networks encourage companies to be more transparent: companies meet their promises and obligations, deliver a coherent dialogue and improve the relationship with their stakeholders.
Application of values raises the possibility of good results and profits for companies through improvement of their reputation and business as well as optimization of resources. This certainly creates competitive advantages, establishes a strong cultural connection and improves employees’ motivation.
Before taking any decision, an institution should keep in mind the fact that it needs implicit and explicit public approval. Good business management implies risk management, creating a climate of trust, good will, credibility, social commitment and empathy between stakeholders and the company.
Business and Risk go hand in hand, the professionals like chartered accountants with expertise in finance, management and audit are well suited for the role of forecasting, evaluating, and mitigating prospective risk involve in any organization’s activity and seize opportunities to take the growth of business on next level. This article brings you in-depth details of the role of a chartered accountant in Enterprise Risk Management.
Enterprise Risk Management - Aligning Risk with Strategy and PerformanceResolver Inc.
COSO, which has provided global thought leadership and guidance on internal control, enterprise risk management, and fraud deterrence for over three decades, recently released a draft update to the original COSO ERM Framework. This framework is widely used by organizations to enhance their ability to manage uncertainty, gauge risk, and increase stakeholder value. However, significant new risks have emerged since the Framework was released, demanding heightened board awareness and oversight of risk management, as well as improved risk reporting. For those organizations exploring ESRM – these themes will be strikingly familiar and the lessons learned, highly relevant.
Presentation by: Bob Hirth, Global Chairman of COSO.
Audits have changed their traditional focus from cost control towards a global strategy of risk management, governance, value creation, and organizational culture. Auditing is a representative element of corporate culture because it defines how companies think and act, but manage decisions are the true reflection of how a company thinks and acts. Thus, this area expands its importance thanks to its direct participation in risk management and value creation.
POSITION OF INTERNAL AUDIT IN THE CORPORATE FRAMEWORKHaresh Lalwani
This presentation is my endeavor to bring to notice the new position that internal audit enjoys today in the corporate framework, expectations of the industry and emerging opportunities for the professionals.
The role of audit committees continues to expand to keep pace with the modern business operating environment. In addition to responsibility for a company’s financial reporting and management, audit committees increasingly take an active role in an organization’s risk management strategy.
Audit committees can be instrumental in helping their organizations implement procedures to address the challenges they face. They can also assist with addressing internal and external audit findings or with exploring best practices for addressing areas of operations that may be vulnerable to disruption or extraordinary risks.
How Audit Committees Can Help with Third-Party Risks
OverseeRiskAsNewerMoreComplex
1. Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol.7, No.21, 2016
21
Oversee Risk Management as Newer and More Complex Risk
Emerge in Corporate Sector
Yasir Aziz Tanoli
MPhil Scholar at IoBM, Karachi
Kashif Hashmi
Visiting Professor at IoBM, Karachi, Pakistan
Abstract
This research paper revolves around the basic concepts of risk management, corporate governance, and the
strategic decisions of the board members of the firm. These three concepts are connected and correlated with
each other. The good governance can lead a firm to avoid risk which can damage the firm. By reducing risk, a
firm can manage its profit maximization and can maintain a healthy corporate environment. In addition, this
paper also discusses the framework of the corporate governance, the problems faced by the board committee in
managing risk, and the ways of reducing risk. Corporate governance can avoid the risk by practicing the
suggested framework in their organization and can understand their responsibilities.
Keywords: Risk management, Complex Risk, Corporate Sector.
JEL Classification: G32, M10, O16
1. Introduction
Corporate governance refers as the processes, methods and guidelines by which the problems, affairs and the
structure of the organization can be managed and direct. It is about how the information, credibility,
accountability and transparencies can be maintained and this discloses the performance of the organization.
Good corporate governance includes the board members and stake holder i.e. customers, staff, regulator,
communities and suppliers. They all played a role in a good governance of the corporate.
Corporate governance is necessary for all sectors of organizations but it is mandatory in managing or
reducing risk. Risk management defines as identification, assessment and prioritization of risk. Risk is directly
related to the fluctuations in expected return and return from investment. These fluctuations reflect the earning
profit of the organization, its capital structure and the financial performance of the firm. From the last few
decades, companies met to a failure and the major problem which the analysts recognized is the poor
performance of corporate governance in risk management. Such as in 2001 in UK the Marconi has collapsed
and the reason behind it is the misguided strategy from the governance of the firm. So it is important for the
board members to understand the risk management in order to avoid any failure. Risk management should not
only focus on how to reduce risk, but it should also involve how to assess the risk from all sides which helps the
corporate governance in their strategic planning.
Practically, it is not possible to avoid the total risk, but it can also b reduced or diverse. So the
corporate government must understand the amount of risk their organization can handle and they can willingly
accept it. There are many ways, methods and solutions by which the company board members and stake holders
can oversee risk management includes they should have the same purpose and scope, empowerment of executive
management and committees, active strategy of managing risk, shareholders and stake holders hold boards to
account etc.
1.1 Objectives of research
The objective of this research is to define how we can manage risk in the corporate sector under the shelter of
corporate governance. It also discusses the ways and methods by which the risk can be managed or reduced by
the shareholders and stake holders. Moreover, we will found out what are the leading risk concern for the board
members and how the board should review the adequacy of company’s risk management practices and the
security measures can be done.
1.2 Methodology
In this research, deductive approach is used which includes to design a research strategy which is based on
hypothesis develop by existing theory to avoid risk. The research is entirely literature-based in which conclusion
is derived from selection and discussion of theoretical material and detailed comparison of theories in terms of
their applicability.
2. Literature review
Risk and its uncertainty influence the decisions which effects the pay-offs of the organization. Risk management
involves the ways to secure from harm and to maintain the share prices of the firm. So it is important to combine
the finance and the marketing strategies of the firm to the market. A question arises that how the risk
2. Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol.7, No.21, 2016
22
management can be done by its assessment, perceptions, attitudes to the market structure from the buying and
selling side of the firm. With the passage of time, risk fluctuates in various forms especially in the financial and
technological firms. Risk is also a critical part of food industries, where any unpredictable risk can notice which
affects the supply and demand of products.
Organizations do risk management by assuming risk perception, risk attitudes or risk aversion. Risk
perception and risk attitude can investigate simultaneously but dramatically it can vary up and down in the
organization. To overcome the risk, many strategies can be used by the channels. (Pennings & Wansink, 2004).
Well there are many motivations to manage risk, but a noticeable way is to create board committee of
the firm which involves the share holders. The corporate investor’s decisions are more likely matters to manage
risk because the corporate investors implement the corporate financing decisions such as taxes, information or
conflict which directly affects the firm. Corporate governance of the firm must be able to mitigate, reduce or
diverse risk to prevent the organization from imperfections. In the corporate world, it is important to understand
the financing decisions which can directly affect the value of the firm. (Wu & Xu, 2005)
In the corporate governance, the structure of the board directors affects the company’s performance.
Good corporate governance consists of hiring, monitoring and compensating the management, and oversight of
managers. (Perry & Shivdasani, 2005). Many researches show that good corporate governance plays role in
reducing the risk and the problems of the firm. But the structure of the board governance effects the changes in
the business environment. (Becher, Campbell II, & Frye, 2005).
2.1 Understanding risk to make strategic decisions
Strategic decision making is very easy to understand, but at the same time the strategic decision to overcome the
risk is more complex because it requires the senior management to assess, predict and analyze the risk and then
make decisions considering it. Effective decision making needs a solid understanding of risk what the firm faces.
In firms, the central idea of the decision making is uncertainty. When the corporate governance analyzes the risk
then it can take several steps to develop effective strategies for the firm which includes:
• There is no guarantee that future is full of achievements and will not involve any uncertainty. So the
first step is to anticipate the future and make probabilities of uncertainties that the firm can face in
future.
• The second step is to make alternative strategic decisions by imagination and intuitions to overcome the
risk.
• Third step is to make decisions for effective adaptation of the environment by the organization as well
as its individuals.
Effective strategic decision making is necessary for the firm’s value and for the evolution of the
organization. By implementing these steps on decision making, corporate governance can reduce the future risk
and can have the ability to create more effective decisions for the organization. (Hatch, 2011).
2.2 Leading risk for board members
From the age of corporation emerges, there are many elements which emphasizes the determination of profit to
the organization. But now the owners, creditors, investors, government all focuses on the financial accounting of
the firm.
2.2.1 Reputational risk
The reason for good corporate governance is to safeguard the reputation of the organization and getting enough
information about the investors and regulators of the firm. Over the last 500 years, accouters have used the
accounting reporting model, which is updated only in the Industrial revolution. The information from this model
is not enough and thus caused many failures in the corporate world. It is important for the investors to have full
knowledge and information about the financial performance of the firm to ensure the reputation of the firm and
that their investments are properly managed. To avoid the reputation risk, the corporate governance requires the
provision of:
• past and future-oriented information
• financial and non-financial information
• profit and socially responsible information
• accurate and timely information
• motivational information
• Strategic and control information
The workers of the organization i.e. white collar or blue collar tend to have more information rather
than others. The role of corporate governance is to manipulate the available data and information into the new
measures demanded to avoid the reputational risk. (Ratnatunga & Vincent, 2007).
3. Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol.7, No.21, 2016
23
2.2.2 Cyber security risk
In this technological world, everything becomes easier, precise and wireless through which the information can
gather and transfer easily. But where the technologies give advantage to us, on the other side it can harm us too.
The second leading risk now a day organizations face is Cyber security risk. Cyber crime become easier as the
technology becomes advanced. The evolving use of internet and connected information system of the corporate
governance face challenges to government, private sectors and individuals through all around the world. Nearly
daily the newspaper and television announces the cyber breeches of major organizations in the US. The cyber
challenges become greater in the technological world where only few professionals and technical resources are
there to protect organizations from cyber security risk. (Bisong & M. Rehman, 2011). Wireless gives advantages
to improve productivity, accessibility to information, precise information data, and secure the information from
external threats. Network connection is easier, faster and up to date and less expensive. But wireless network has
also created new challenges, threats and risk which are not ignorable. The security objective remains same with
the cyber network because it can be hacked, and confidential information can leak out. Cyber network is the sign
of technological advancement of the world which is convenient, easy to use, cut cost and integrate easier with
the other networks.
2.3 Cyber security attacks
2.3.1 Accidental association
Individuals can get easy access to the company’s wireless and network connection from different methods.
When an individual turns on the computers and links with the wireless access point, from which the other
company’s network is also linked, the user may know that the connection has occurred with the neighboring
company’s network and can get easy access to its information and data. Although this is a breach of cyber rules,
but this is a way through which the company should aware of.
2.3.2 Ad-hoc networks
These networks are connected between wireless computers through peer to peer networks, it does not share the
same access point but the information from these networks can share easily.
2.3.3 Non-traditional networks
Non-traditional networks are not computer based but from the devices as Bluetooth which is not safe for
cracking and should be regarded as security risk. The other cyber attacks are as follows:
• Identify theft (MAC spoofing)
• Man-in-the-middle attacks
• Malicious association
• Denial of service
• Network injection
• Caffe latte Attack
2.4 Securing cyber security risk
Cyber security risk can be avoided by making the wireless connection more difficult to locate and intercepts the
wireless signals. The second method is use of encryption to protect confidential information. It is mandatory for
organization to make it more difficult to access its data point network. The easiest way which is cost cutting and
less expensive is to turn off the service set identifier (SSID). It reduces strong signals to its lower level that still
provide the network within the building but not outside the walls. The other method is to encrypt all wireless
traffic which prevents the transfer of information from one to another network. Countermeasures can also be
made to reduce the risk of such attacks. Weak and poorly configured access point of network can become strong
by
• Elimination of rogue access point
• Configuring all access points properly
• Authentication of devices by using 802.1x
Cyber networking is beneficial for the organization because it is cost cutting, less expensive, easy to
use, increase opportunities and productivities of the organization. But it also reflects the security risk, although it
is impossible to eliminate the cyber security risk but risk can reduce by implementing all the various ways to
secure information through the network. Countermeasures can be done to mitigate or transfer the risk. (choi,
John Robles, Hong, & Kim, 2008).
3. Challenges faced by the board committee in managing risk
There are five challenges which the board committee has faced in managing risk. They are:
4. Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol.7, No.21, 2016
24
3.1 General Challenges
It includes the selection of appropriate frame work of risk and its implementation in the organization. Some
frameworks are good for firm such as workbook material and display sides which shows the implementation
process. Auditors of the firm can help to select the framework which is best in the favor of organization.
Technological part is important in organization as the technological world get advanced. Many methods in
security risk management do not based on framework.
3.2 Human errors
Human factor is the only factor which cannot ignore or predict. To ensure the framework suits the organization,
the human factor should be minimized. Humans are necessary in the implementation of the plans and strategies.
The risk management team needs to agree on the same risk definition, risk assessment, and its management.
3.3 Complex Environment
Complex environment comprises of uncertainty, complexity, volatility and ambiguity. In order to apply
strategies, it is important to understand what is happening in the environment and what could happen. For
example, the earthquake in Japan which caused tsunami and results in several explosions and then a nuclear
meltdown at Fukushima nuclear power plant occurs. (Kerstin, Simone, & Nicole, 2014).
4. Risk Assessment
4.1 Importance of risk assessment in strategic planning process
Managing strategic planning process is the most difficult part of every organization to attain its objective
whether it is private or government. In some recent researches, it is showed that only 70 percent of strategic
planning can be executed. Strategic plans are completed by its implications and the positive predicted results.
Strategic plan includes operations, timelines, responsibilities and resources through which the planning can do
and the goal can achieve. It plays an important role in the success of organization to achieve its objectives and
goals. Strategic planning involves internal structure, external environment, financial resources and role of human.
After execution of strategic planning, strategic evaluation is used to judge the pros and cons of decision, merits
and positive impact of it. Strategic plan acts as a bridge between perceived present situation and desired future
position of the firm. (Kibachia, Iravo, & Luvanda, 2014).
In an organization, it is important to assess the risk through which the environment of the firm remains
healthy and as well as risk can be managed. Risk assessment has played a vital role in the strategic planning
process, because if the planning does not assess the risk, it may harm the whole planning and its execution. Risk
assessment includes what, and how risk can damage the firm and its financial value. So in risk management, the
most important step is to assess the risk and make strategies to overcome it. The good risk assessment can help
the organization to take corrective measures that are most appropriate. (Lele, 2012).
Risk assessment involves two process i.e. Risk identification and Risk analysis. Risk identification
involves all the events and possibilities of the organization and risk analysis set the priorities in identifying risk.
Brainstorming, checklists, structure, work analysis helps to identify risk. Risk assessment methods involves the
following steps i.e. mitigate risk, avoid risk, transfer risk, accept risk. By using these activities the strategic
planning can be done effectively and thus prevents organization from major harm or failure. (Jr., Gusmao, &
Mora, 2013).
4.2 Implications of risk assessment
The implications for risk assessment are significant as follows:
• Investors should diversify their investments portfolio to avoid risk and generate a higher expected
return. Diversification of investments is the best way even if they have special access to information
and transaction cost.
• In general, the risk of an asset can be measured by the risk it adds on to the portfolio that it becomes
part of and in particular, by how much it increases the variance of the portfolio to which it is added.
Thus, the key component determining asset risk will not be its volatility per se, but how the asset price
co-moves with the portfolio. An asset that is extremely volatile but moves independently of the rest of
the assets in a portfolio will add little or even no risk to the portfolio.
• Potential for large payoff and jumps of prices become irrelevant when they are factorized in variance
computation.
4.3 Monitoring role of board in reputational and cyber security risk
It is recognized that directors and officers are responsible to protect the asset of their organization. In the recent
years, this duty has expanded by the digital assets and laws, rules and regulations that impose laws on cyber
security of companies. In the survey of 2015, the company’s board has established risk committee and audit
5. Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol.7, No.21, 2016
25
committee to shift risk to oversight. Many board committees are failed to recognize the link between information
technology risk and enterprise risk. Boards are now undertaking the activities that are related to monitoring cyber
security and reputational risk. In 2015, it is declared that only 63% of board governance are actively monitoring
and governing the risk, but now boards are taking part in monitoring the information security, security program
assessment, policies and assessing role and responsibilities for privacy and security. (Perry & Shivdasani,
Oversee risk management as a newer and more complex risks emerges., 2005).
4.4 Understanding of organization for good corporate governance
It is the responsibility of the board members to have overall knowledge about their good business. It helps the
board to make proper decisions, take appropriate actions in the favor of organization. Nearly all companies are
managed by the board committee which is elected by the shareholders and investors to run company in beneficial
dimension. In many countries, board committee is elected through elections which held annually or semi-
annually. The purpose of this committee is the unity among shareholders, judgment of firm’s performance. This
committee has the executive authority to take decisions in the favor of organization. Boards’ responsibility is to
take actions which are in favor of stakeholders and shareholders as well. Board of director act as the body &
mind of the company and the company itself is a personality. If the board members take the wrong decisions,
thus it will affect both the committee members and company.
It is important for board members to have all information and knowledge about the company includes
financial, social, environmental threats, financial profits and the ability of a firm to bear risk. Without having the
information, it is crucial for governance to take a right step for company. By having the overall knowledge,
board directors can understand the minors and majors of the firm; the risk company faces from the external
environment and the amount of risk that a company can tolerate.
4.5 Over sees risk management
Risk can define as “uncertainty that can happen in any situation which causes harm”. In the organizational
context, risk is the unpredictable, unwanted consequences or undesirable events which influence the overall
performance of the firm and cause damage. Risk influences the performance to achieve company’s objectives
and goals. In order to overcome risk, risk management is used by the board members or professionals.
Risk management defines as “the process which includes identification, analysis, prioritization,
planning and monitoring of risk”. Thus risk management helps the corporate governance to mitigate, reduce or
avoid risk.
4.6 Risk Management Steps
4.6.1 Board can manage risk by the following steps
• Identify risk: Usually SWOT analyses are used to identify the risk which is about to effect the
achievements of objectives and goals, performance or environment of the firm. Questions arises that
why, where, when and how the risk can occur, what is the probability or possibility of risk occurring
and what are the priorities of achieving our priorities.
• Analyze the identified risk: It involves the source of risk, the consequences to estimate the uncontrolled
and unprotected risk.
• Assess/evaluate the risk.
• Manage the risk.
• Monitor the risk regularly.
• Communicating stakeholders continuously about the risk environment. (Berg, 2010).
4.6.2 Corporate-level strategy for good governance
The area of business policy increasingly distinct the corporate-level strategy and business-level strategy. These
two different concepts act as an aid to managers in their decision making. Business policies have been evolving
during the past few decades, but they all serves the organization to achieve its objective. These strategies are
applicable to the inter-industry and intra-industry variations. To study organization, these are the more
complexes strategies because they are continuously evolve in the business policies. The person who gave the
concept of different level of organization was Anoff. He discovers that managers face the three types of decision
making i.e. strategic decision, administrative decision, and operating decision. Strategic planning movie through
three stages i.e. set objectives as per priority, setting business objectives and goals in the divisions and establish
the actions to implement on the program on functional level.
There is a relationship between corporate-level strategy and the firm’s performance. Corporate-level
strategy deals with the objectives, goals, purpose, and the plans to define that what business purpose of the
organization is and where it wants to be in. It helps the board members to achieve goals and objectives easily.
Corporate-level or business-level strategies help to define the variation in the firm’s profitability, capital
structure and capital intensiveness which helps to design a strategic planning and strategic decision. (Beard &
6. Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol.7, No.21, 2016
26
Dess, 1981).
4.7 Risk management model
With the increasingly risk challenges facing by the organizations, financial community have provided risk
measurement models to deal with the unpredicted risk. With an optimal capital allowance, organizations urge to
build some risk measurement models. The difficulty arises, when risks have to be pictured in joint distribution.
Multivariate’s outcomes help to position investment and financial risk protection.
4.7.1 Capital asset pricing model (CAPM)
CAPM model developed by Jack Treynor and Bill Sharpe, they added a riskless asset to the portfolio
and concludes that every asset portfolio face risk at some level. So they created a investment portfolio includes
riskless asset and the risk facing assets to generate a higher rate of expected return instead of just holding a
portfolio of risky assets. That investor who wants lesser risk as compare to the market portfolio, they should
invest in a super-efficient portfolio and in a riskless assets. The investors who want to take more risk should
borrow at the riskless rates and invest their money in super-efficient portfolio. All the investors of the firm
should invest in the diversified asset that includes trading assets in the market, held in proportions to its market
value. Hence, this model has no taxes or transaction cost and gives the appropriate information about the assets.
In order to avoid risk, the corporate governance can apply this model to their organization so that they can
reduce risk by diversification of their investment portfolio includes riskless assets that is used to overcome the
damage of the unpredictable risk. (Sharpe & F., 1961)
4.8 Board structure for good governance
Board is responsible for monitoring the organization’s issues, problems, pros and cons, and to resolve the
problems between top management and shareholders. Boards are generally fail to monitor the activities, policies
and risk and thus called outsource professional risk and audit committees. It is argued that market pressure and
risk management lead directors to fulfill their duties of monitoring. The board committee depends on the
composition of board and unresolved questions. To answer these questions, board must act as an alternative
control device which can control the agency problems, manage risk and solves the tensions between
management and shareholders. (Hermalin & Micheal, 1991). Now the question arises whether the board
structure effects on firm performance or not? Many research showed that effective monitoring and the presence
of outsider board results in a failure of performance and strategy. There is a positive linkage between the firm’s
performance and board structure.
4.8.1 Board committee
The task of board committee is to manage the affairs of corporation and manage business. Through the majority
of votes, the board members are elected and they are responsible for the actions and measures of the company.
The main task of the board is to design the long-term investment strategy and risk management of the firm.
Development committees need to establish a regulation or a guideline for the long-term investment. Whereas, the
finance committee reviews the financing policies of firm, investment of funds, dividend policy recommendation
and design the portfolios. Finance committee also looks after the performance of the employees.
The second function of the board directors is to resolve the agency conflicts between upper
management and shareholders. Managers emphasize the consumption of perquisites or selection of suboptimal
investments of their own utility whereas the shareholders want them to work for the wealth maximization.
Finance and long-term committees are design to address decision-making issues.
There are different types of directors in the organization i.e. affiliates, insiders and outsiders. Inside
director usually terms as CEO, president or vice president of the firm. Outside directors usually do not affiliate
with the firm but only act as a board member. Affiliates are those who have a relationship with the CEO, former
employees or those who have significant transactions or business relationship.
4.8.2 Firm Performance and Board Composition
There is a relation between board composition and firm performance in terms of board classification.
Performance measurements are done by analyzing assets, accounting of profitability, income after-tax,
productivity and book value of firm’s assets. So if the board is comprises of the talented and knowledgeable
members then they can lead the firm up to the level. Inside directors are more usable if they properly serve
themselves for organization. But yet most of organizations hire outside directors with small or no shareholding.
This trend does not guarantee the firm’s success and do not give advantage to it. Firms have to reevaluate their
nominating procedures, voting rights in order select appropriate inside directors in the favor of organization.
(Klein, 1998).
5. Conclusion
In recent years, risk management becomes tougher as the technology introduces reputational and cyber security
risk. Risk management is the vital part of the organization to overcome the unpredictable events and
7. Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol.7, No.21, 2016
27
consequences through which company can suffer a huge damage. It is also necessary because strategic decision
making requires all the possibilities, consequences, unpredictable events, losses which can happen by the risk to
forecast future. Cyber security and reputational risk can manage by the inside board of directors efficiently
because they have better understanding of the situation and the company pros and cons, its policies and the
amount which the company can suffer loss.
Risk management can be done step by step which involves identifying risk, analyzing it, accessing it
then monitor risk. This process can use to manage any type of risk. But the risk cannot always avoid, it can
reduce or the only condition is to accept it. The role of corporate governance is crucial in risk management.
Corporate governance design strategic planning process to overcome risk and enhance the performance the firm.
There is a relation between good corporate governance and the performance of the firm. If the board sets suitable
policies, rules and regulations for the firm and take decisions in the favor of the firm, its capital structure, firm
value and profitability by expected return then it enhances the overall firm’s performance.
Board structure plays an important part in good governance and risk management. The board members
should have the whole and adequate information about the organization, its practices, expected rate of return,
threats by external environment and profitability so that they can take an appropriate strategic decisions and
properly execute it.
References
Beard, D. W., & Dess, G. G. (1981). oversee risk management as a newer and more complex risks emerge.
Corporate-level strategy, Business-Level strategy and Firm Performance , 24 (4), 663-668.
Becher, D. A., Campbell II, T. L., & Frye, M. B. (2005). Oversee risk management as a newer and more
complex risks emerges. Incentive compensation for bank directors: The Impact of Deregulation. , 78
(5), 1753.
Berg, H.-P. (2010). Oversee risk management as a newer and more complex risks emerges. Risk management:
Procedures, Methods and Experiences. , 1, 79,80,82.
Bisong, A., & M. Rehman, S. (. (2011). Oversee risk management as newer and more complex risks emerge. An
overview of the security concerns in Enterprise Cloud Computing , 3 (1), 30.
choi, M. k., John Robles, R., Hong, C.-h., & Kim, T.-h. (2008). Oversee risk management as a newer and more
complex risks emerges. Wireless network security: Vulnerabilites, Threats, and Countermeasures. , 3
(3), 77-84.
Hatch, W. (2011). Oversee risk management as a newer and more complex risks emerges. Journal of Defence
Resources Management , 2 (1), 9-12.
Jr., J. M., Gusmao, C., & Mora, H. (2013). Oversee risk management as a newer and more complex risks emerge.
CLEI Electronic journal. , 16 (1), 2-3.
Kibachia, J., Iravo, D. M., & Luvanda, A. (2014). Oversee risk management as a newer and more complex risks
emerge. A survey of risk factors in the strategic planning process of Parastatals in Kenya. , 2 (3), 51-
52.
Lele, D. V. (2012). Oversee risk management as a newer and more complex risks emerge. Indian Journal of
Occupation and Environmental medicine , 16 (2), 57-58.
Pennings, J. M., & Wansink, B. (2004). Oversee risk management as a newer and more complex risk emerge.
Channel contract behavior: The role of risk attitudes, risk perceptions, and channel members' market
structures , 77 (4), 697-698.
Perry, T., & Shivdasani, A. (2005). Oversee risk management as a newer and more complex risks emerge. Do
boards effects performance? Evidence from corporate restructuring. , 78 (4), 1403.
Ratnatunga, J., & Vincent, M. (2007). Oversee risk management as a newer and more complex risks emerges.
The valuation and reporting of Reputation of risk management capabbility , 5 (10), 7-8.
Sharpe, & F., W. (1961). oversee risk management as a newer and more complex risks emerge. Capital assets
pricing: A theory of market equilibrium under conditions of risk, Journal of finance. , 19 (3), 425-442.
Wu, X., & Xu, L. L. (2005). Oversee risk management as a newer and more complex risk emerge. The Value
information of financing decisions and corporate governance during and after the Japanese
deregulation , 78 (1), 243-244.