Section V: Corporate Risk Governance

Question 1

What is Corporate Risk Governance?

Answer 1

It refers to the system of formal rules, practices, and organizational structures used to organize and run a company.

Question 2

What is the difference between For-Profit and Non-Profit Corporate Governance?

Answer 2

For-Profit focuses on maximizing share value whereas Non-Profit focuses on maximizing the value of the goods & services they provide.

Question 3

What are the 5 major Corporate Governance codes?

Answer 3

• Corporate Governance for Listed Corporations (the French Code)
• New York Stock Exchange (NYSE) Code
• Sarbanes-Oxley Act
• SEC Rules
• UK Corporate Governance Code (the UK Code)

Question 4

What are the 5 things that Corporate Governance codes require an organization must do?

Answer 4

• Balance Directors
• Establish an Audit Committee
• Establish Board Member Selection
• Evaluate Committees
• Implement a Compensation Committee

Question 5

Why should Ownership and Control be different?

Answer 5

Separating Control from Ownership allows for better decisions and diversified risk.

Question 6

What are the three categories of Agency Costs?

Answer 6

• Bonding Costs (managers pay bonding costs)
• Incentive Alignment Costs (shareholders carry most of these)
• Monitoring Costs (shareholders pay most of these)

Question 7

What four mechanisms align manager and shareholder interests?

Answer 7

• Incentive Compensation
• Legal Liability
• Management Reputation
• Takeover Threats

Question 8

What does ESG stand for?

Answer 8

Environmental, social, and governance factors.

Question 9

What other names does ESG go by?

Answer 9

• Socially Responsible Investing
• Sustainable Investing
• Impact Investing

Question 10

What are the 6 major positions in Corporate Governance Risk Roles?

Answer 10

• Board of Directors (establishes risk appetite)
• Chief Executive Officer (tweaks risk appetite)
• Chief Risk Officer (dedicated to risk management)
• Internal Auditors (ensure all employees understand risk)
• Senior Managers (transform broad strategies into more focused objectives)
• Operational Managers (develop risk management for daily tasks)

Question 11

What is a Risk Champion?

Answer 11

An individual who addresses a specific aspect of risk management. They gather information, facilitate discussions, and develop the orgs ERM process.

Question 12

What are the two types of Risk Committees?

Answer 12

• Board-level (support board of directors)
• Executive-level (gather intelligence, develop and approve risk management strategy)

Question 13

What are the two major categories of Board Members?

Answer 13

• Inside Directors (employed by company, like CEO)
• Outside Directors (nonemployees specifically chose for their expertise)

Question 14

What are the nine major responsibilities of a Board of Directors?

Answer 14

• Appoint, advise, and audit all officers of a corporation
• Approve key financial decisions
• Delegate special powers
• Ensure Shareholders get copies of all reports
• Establish both objectives and policies for the organization
• Make sure the Board of Directors is responsible and has the needed qualifications
• Protect corporate assets
• Review and apply corporate charter and bylaws
• Serve as fiduciaries for the corporation and shareholders

Question 15

What are the three most important corporate board committees?

Answer 15

• Audit Committee
• Compensation Committee
• Nominations and Corporate Governance Committee

Question 16

What are the three main factors that impact corporate governance and risk oversight?

Answer 16

• New demands for risk oversight
• Recent trends
• Structure and organization

Question 17

For the board to exercise the oversight of risk effectively, what are the 4 aspects of the organization that they must understand?

Answer 17

• Current risk portfolio
• Key risks and responses
• Risk appetite and philosophy
• Risk management processes