CORPORATE GOVERNANCE & RISK
What is Corporate Governance?
What is Risk Management?
How do they intersect ?
Why is Risk Governance important - What is
consequence of failure?
What to do (how do we respond?)
WHAT IS CORPORATE GOVERNANCE?
• What is Corporate Governance?
• There are many definitions. The CBN Code of Corporate Governance defines it as follows:
• Corporate governance refers to the processes and structures by which the business and affairs of an institution are directed and managed. In order to improve long-term shareholder value by enhancing corporate performance and accountability, while taking into account the interest of other stakeholders. • Corporate governance is therefore about building credibility, ensuring transparency and accountability as well as maintaining an effective channel of information disclosure that would foster good corporate performance.
• For me, it is simply:
• Doing the right things and doing things right.
• In other words, “Doing the right things for the organization and doing things the right way independent of personal interests”
• We could say it is the Processes and Systems by which a company is governed which ensure appropriate checks and balances”.
• Essence is to ensure:
– Good performance of the organization
– proper accountability to all stakeholders
– mitigation of conflicts of interest
• Stakeholders include: Customers, Staff, Shareholders, Suppliers, Regulators, Communities
Put in equity to set up the
Shareholders nominate a Board of
Directors to run the business on their
behalf. They set the business policies
Board includes a Management team led by
the MD/Executive Directors who manage the
business on a day-to-day basis. They design
appropriate strategies to implement agreed
Senior Management is recruited to develop
business plans/processes/ procedures to
execute the strategies
• FOUR PILLARS OF CORPORATE GOVERNANCE
• Major elements of corporate governance
– Board Commitment
– Good board practices,
– Functional and effective control environment,
– Transparent disclosure,
– Well defined shareholder rights
WHAT IS RISK MANAGEMENT?
• What is Risk Management?
• Risk management is the identification, assessment, and prioritization of risks. • It is defined in ISO 31000 as the effect of uncertainty on objectives (whether positive or negative) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities.
• Probability (Likelihood) of event occurring
• Severity (Impact) of the event on set objectives
• The strategies to manage risk typically include transferring the risk to another party, avoiding the risk, reducing the negative effect or probability of the risk, or even accepting some or all of the potential or actual consequences of a particular risk. • Let's look at common risks in financial institutions
• Credit Risk - Credit risk is most simply defined as the potential that a bank borrower or counterparty will fail to meet its obligations in accordance with agreed terms. • Market Risk - Market risk refers to the risk of loss to an institution resulting from movements in market prices, in particular, changes in interest rates, foreign exchange rates, and equity and commodity prices.
• Operational Risk – This is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external...
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