Corporate governance and risk management are key components in the survival and growth of companies. In the UK which has well-established regulations and high stakeholder expectations, effective risk management enhances the structures and processes of governance of an organisation.
What is Corporate Governance?
Corporate governance is defined as the manner in which a company is both directed and controlled using processes, systems and policies. These aim to provide responsible business conduct, equity and transparency within the management, stakeholders, and shareholders of the company.
What is The UK Corporate Governance Code?
Stock exchange-listed companies are expected to abide by best corporate governance practices as prescribed in the UK Corporate Governance Code maintained by the Financial Reporting Council (FRC). Amongst other principles, the Code highlights the importance of board leadership, allocation of duties, composition of the board, succession management, auditing and risk control.
Role of Risk Management in Corporate Governance
Risk management is the identification, evaluation and elimination of threats to a business’s objectives. It is the central pillar of a well-functioning corporate governance system as it provides a systematic way of organising and preparing for future uncertainties. Here are some ways that risk management strengthens corporate governance:
Enhancing Strategic Decision-Making
Strategic managers in an organisation have to make important decisions that can affect the company greatly. Enhanced risk management makes sure that these decisions are taken with sensitivity to risks that might have to be incurred. Through risk management and the strategic planning process, businesses can adopt strategies that foster expansion while simultaneously safeguarding against unforeseen challenges.
Safeguarding Stakeholders Interest
Governance seeks to serve the interest of the shared wealth owners as well as other parties associated. Risk management serves by determining the weaknesses that can threaten the effective and efficient financial, reputational, and legal performance of a company.
Enhancing Compliance and Legal Risk Management
In the UK, there are regulations to which companies must adhere to, like the Companies Act of 2006 and industry regulations. Risk management practices help a company determine compliance risks like; data leakage, bribery, and failure to meet environmental standards.
Better Transparency and Accountability
Accountability is enhanced by risk management frameworks that ensure risks are monitored and mitigated. These frameworks help create a culture of accountability by ensuring that risks are tracked, reported, and addressed.
Reducing Reputational Risks
A company’s reputation is a valued asset for every business. To best protect this, and prevent potential damaging publicity or ethical breaches, risk management strategies are required. It is also possible for boards to avoid and minimise the effects of potential reputational risks.
Risk Management Jobs in Corporate Governance
There are a multitude of career paths in risk management within corporate governance, from risk analysts to compliance officers. Here we outline some of the most common jobs in risk management:
Risk Analyst
Risk analysts determine risks with the use of patterns and numbers, providing data that aids in decision-making.
Credit Risk Manager
Credit risk managers determine if people can take loans, observe how the loans are doing, and think of ways to prevent losses due to unpaid debts.
Operational Risk Manager
Operational risk managers concentrate on risks affiliated with internal procedures regarding regulation and limit business interruptions.
Compliance Officer
Compliance officers make sure the business meets all of the compliance requirements and also guard against compliance risks.
Enterprise Risk Manager
Enterprise risk managers manage risks on the whole level of the company, integrating such strategies with business targets and watching for new danger signals.
Cybersecurity Risk Specialist
Cyber security risk specialists defend against online attacks, putting in place measures to protect the company and dealing with the aftermath of the attack.
Market Risk Analyst
Market risk analysts predict risk trades due to changes in the market and create models to assist in portfolio and financial risk management.
Environmental Risk Manager
Environmental risk managers address risks resulting from new and changing regulations regarding the environment, global warming, and environmental protection policies.
Insurance Risk Maanger
Insurance risk managers liaise with insurance firms for policy terms, supervise claims, and strive to reduce losses.
Fraud Risk Manager
Fraus risk analysts monitor activities, transactions, and controls that help them find, investigate, and stop scheme activities.
Quantitative Risk Analyst
Quantitative risk analysts are known for their ability to create complex mathematical models with a primary focus on financial risks in financial markets; often within investment banking or hedge funds.
Risk Consultant
Risk consultants help companies understand levels of risk and how to minimise them through audits and certifications with the intention of fortifying frameworks.
Chief Risk Officer
Chief risk officers oversee all risk management by setting up risk policies and working closely with the management team to make sure risks are appropriate for the business.
Project Risk Manager
Project risk managers are tasked with the responsibility of recognising potential risks in the delivery timeline and budget of the project and managing them for the successful completion of the project.
Reputational Risk Manager
Reputational risk managers are responsible for protecting an organisation’s image by measuring the public perception and managing factors that might negatively impact the reputation of that organisation.