4. Internal risk frameworks Flashcards
Components
- Corporate governance
- Line management
- Portfolio management
- Risk transfer
- Risk analytics
- Data + tech
- Stakeholder management
What is the purpose of corporate governance
Establish organisational processes and controls
What is purpose of line management
Integrate risk management into business processes
What is the purpose of portfolio management
Agg risk exposures, identify risk diversification effects and risk concentrations
What is the purpose of risk transfer
Cost effective way of passing on of excessive risk
What is the purpose of risk analytics
Measure, analyse and report on risk
What is the purpose of data and tech resourves
Support analytics and reporting
What is the purpose of stakeholder management
Communicate and report on risk
Define corporate governance
System where BoD or governing bodies are responsible for governance of their orgs upon appointment by shareholders
What is the aim of corporate governance?
Improve performance and conformance of companies for the benefit of shareholders, policyholders, other stakeholders and wider economy.
What are the common themes in corporate goveranace
- Communication with stakeholders
- Independence of board
- Board performance
- Board remuneration
- Board appointments
Key stakeholders in corp governance
- BoD
- Risk subcommittee
- Audit subcommittee
- CRO
- Line managers
- All employees
What are Cadbury corp gove recommendations?
- Should be full board meeting regularly
- Chair and CEO must be diff people
- Board must be made aware of significant activities e.g. acquisitions
- Majority of NED must be independent
- NEDs must have key responsibility for certain control and monitoring functions
- Shareholders must approve dictors’ service cintracts in excess of 3 years
- Director’s remuneration must be reviewed by a remuneration committee made up of NED (or majority NED)
- Company reports must be balanced and understandable giving details of setbacks and successes
Best practice for BoD
- Must be composed of a majority of independent NED, i.e. people not employed by management of the company
- Subcommittess formed exclusively of non-executive and ideally independent directors, must consider issues where independence is NB e.g. audit, remuneration and appointments
- CEO and Chair must not be the same person. If CEO is Chair, rationale must be published and a “lead director” appointed to co-ordinate Board’s activities towards meeting its responsibilities
- Board must meet regularly without CEO present
- NED must meet independently of ED at least annually
Best practice for Board remuneration
- Board must set objectives for CEO and regularly appraise CEO’s performance against them.
o Objectives must include reference to risk management. Process can then feed into CEO’s remuneration - Majority of director’s remuneration must be in form of shares in company
o Together with vesting schedules and clawback provisions»_space; ensures that objectives of directors are in line with long term interest of the shareholders they are acting on behalf of - Board remuneration, incl share options and pension benefits must be fully disclosed.
