Risk Management in Corporate Governance

Information security and corporate asset protection in general is not a purely technical matter, but a management issue at the corporate level.

Risk Management in Corporate Governance

Information security and corporate asset protection in general is not a purely technical issue, but a management issue at the company level. It is based on three fundamental pillars: critical infrastructures, organization, and technology. Although critical infrastructures are often outside the direct control of the organization, their balancing and protection are an essential element of corporate governance. Total security is neither technically achievable nor operationally practicable; uncertainty and risk are part of any organization’s activity. Therefore, it is necessary to determine which assets need to be protected and what level of protection is necessary.

Only corporate leadership is capable of initiating plans and policies that address all aspects of security in a balanced and integrated manner. Entrusting security exclusively to the IT function (or to software or AI tools) would only strengthen one of the pillars, namely technology, without fully achieving the expected results. Failures in security are more often management failures than technical ones.

This approach to organizing security provides corporate executives with strategic guidance to initiate security initiatives, develop appropriate policies, and monitor their effective implementation. In fact, security management must be seen as a cross-functional process that involves all company functions, from strategy to operations, from finance to human resources, within an integrated and shared framework.

Corporate Governance refers to the set of processes, structures, rules, and relationships by which companies are managed and controlled. Practically, it concerns the way corporate decisions are made and supervised, aiming to ensure transparency, accountability, and the alignment of interests among the various stakeholders involved.

Good Corporate Governance helps reduce conflicts of interest, improve company performance, and strengthen market confidence, which is fundamental for attracting investors and supporting sustainable growth.

But what are the key factors that influence the effectiveness of risk management within an organization?

For risk management to be effective, it must be incorporated into the organization’s operations and procedures, becoming an integral part of its culture and decision-making processes. This requires that leaders recognize their role and responsibility in implementing risk management in the areas they operate.

In addition to integration into organizational culture, accurate risk assessment is crucial for weighing the impact and probability of risks. Although many risks, particularly financial ones, can be quantified numerically, some require a more subjective perspective, such as reputational risks. Risk assessment should be conducted at least once a year to stay up-to-date, identify new risks, and assess the persistence of existing risks.

Following this phase, proactive risk management is necessary to limit threats and transform uncertainties into advantages for the organization. However, in cases where mitigation costs are disproportionate, no action is defined but the risk itself is tolerated, or better yet, transferred to other organizations, often through insurance, especially for financial or property risks.

In a context of effective corporate governance, the audit committee plays a crucial role in overseeing risk management, rigorously assessing its contribution to optimizing operations and increasing the organization’s value. The committee must also provide independent assurances about the effectiveness of the risk management system.

The effectiveness of risk management is also influenced by several contextual factors such as environmental uncertainty (market volatility, economic uncertainty, geopolitical risks), competition, and the complexity and size of the organization.

Enterprise Risk Management (ERM) systems are valuable tools for managing all of a company’s risks, including reputational risk. A high-quality ERM system can enhance the corporate reputation, and the audit committee plays a fundamental role in overseeing the quality and effectiveness of the ERM system.

For successful risk management, the involvement of all levels of the organization is necessary. This includes risk self-assessment by employees, periodic reporting by management, and specialized review of the overall risk management process.

The risk management process must be constantly subject to monitoring and review to ensure its functionality and effectiveness. This dynamic process requires the continuous identification of risks, assessment of their significance, development of management strategies, and monitoring to update strategies and ensure control.

Finally, clear and timely communication about risks and management strategies is essential for all levels of the organization and for external stakeholders.

In conclusion, effective risk management requires a holistic and integrated approach that considers contextual factors, organizational culture, and employee involvement. By incorporating risk management into daily operations and adopting a dynamic process of assessment, control, monitoring, and communication, organizations can effectively mitigate threats and seize opportunities, improving performance and achieving their goals.

To effectively structure your organization’s corporate governance (even an SME needs it!), you can turn to Kriptia by writing to info@kriptia.com.

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