Possible Corporate Governance Risks

corporate-governance-risks

Identification, measurement, analysis of corporate governance risks, as well as their management are impossible without adequate systems of corporate behavior and organizational development of the company.

Risks in the Corporate Governance System

As strange as it may sound, the practice of corporate governance has existed for several centuries. A full-fledged theory of corporate governance began to form only in the 80s. last century. True, at the same time, the slowness of comprehending the prevailing realities was more than compensated for by the research “boom” and the intensification of regulation of relations in this area.

The current stage of development of companies is characterized by a significant increase in interest in the topic of corporate governance, which is becoming more technological, accurate, and measurable. Corporate governance is associated with the joint-stock form of organization of a company, covers an external sphere of activity for it, and operates with instruments that cross the boundaries of legal entities. Practice shows that in its development, corporate governance, as a rule, goes through several stages, depending on the economic maturity of the society and the company itself.

Large and medium-sized companies, taking into account the specifics of economic development, generally have three organizational stages. At the initial stage, there is an understanding of the general concepts of corporate governance. At the same time, pressure from minority shareholders, primarily foreign shareholders, is often the impetus for action. At this stage, the main shareholders and managers still have little sense of the practical value of corporate governance, especially since a public offering of shares is an extremely rare and still exotic form of raising capital.

The List of Corporate Governance and Risk Management

Rational decision-making and action in the interests of corporate governance and risk management based on a comprehensive assessment of the information provided, in good faith, with due diligence and care. The duty to exercise discretion and diligence does not extend to errors in business decision-making unless board members have been grossly negligent in doing so.

Take a look at the list of corporate governance and risk management below:

  1. Risks of poor corporate governance and stakeholder governance. Weaknesses in stakeholder management mechanisms or the adoption of poor corporate governance structures can create various risks for the company and its stakeholders. A weak control environment can encourage misconduct and hinder a company’s ability to identify and manage risks.
  2. Weak control systems. In a company with weak governance systems or ineffective monitoring tools, such as poor audit procedures or insufficient board oversight, one stakeholder group may benefit from the company or other stakeholders.
  3. Ineffective decision-making. When the quality and quantity of information available to managers exceeds that available to the board of directors or shareholders, in the absence of sufficient monitoring tools, managers are able to make decisions in their own favor rather than in the interests of the company or shareholders.
  4. Making decisions and acting in good faith in the interests of the bank, without taking into account personal benefits, the interests of persons associated with the bank by special relations, to the detriment of the interests of the bank.
  5. Preliminary consideration of the draft corporate governance code and (or) amendments to it. Within the framework of the corporate governance code, a procedure is being developed to manage a conflict of interest and mechanisms for its implementation, as well as control over its implementation.
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