ACCA SBL Syllabus D. Risk - Risk in the context of corporate governance - Notes ^{1 / 9}

This is present when future events occur with measurable probability

Risk and Corporate Governance

One link between risk and corporate governance is the shareholders' concerns about the relationship between the level of risks and the returns achieved.

Another is the link between directors' remuneration and risks taken. 

If remuneration does not link directly with risk levels, but does link with turnover and profits achieved, directors could decide that the company should bear risk levels that are higher than shareholders deem desirable. 

It has therefore been necessary to find other ways of ensuring that directors pay sufficient attention to risk management and do not take excessive risks.

Corporate governance guidelines require directors to:

• Establish appropriate control mechanisms for dealing with the risks the organisation faces

• Monitor risks themselves by regular review and a wider annual review

• Disclose their risk management processes in the accounts