Far removed from day-to-day corporate operations, governance provides a mechanism for planning and implementing enterprise-wide strategies on a macro level. Whether overseen and enacted by a board of directors or the legal department, it defines a company’s values and priorities while influencing its direction. A large part of effective corporate governance involves creating a structure of accountability and transparency through compliance reporting and comprehensive risk management.
The Relationship Between Risk and Profitability
The most successful companies are those that think big and take risks. They’re the innovators that create groundbreaking products and services that can change the world while rewarding shareholders. You can learn a lot from a company’s successes. However, some of the biggest lessons a company can learn are found by examining those who take risks and fail, taking note of those who were able to rebound by retooling their risk-management strategies.
Traditionally, risk management was people-focused rather than emphasizing procedure. Protocols were put into place that relied on employees reporting perceived risk to management, who kicked it up to the powers that be, who then formulated metrics and standards to address vulnerabilities and mitigate risk. This resulted in an uneven application of standards and mixed results.
Shifting Focus in Corporate Governance
There is a shift in risk management to incorporate weaknesses in reputation as well as financial vulnerability. This requires a more robust, centralized approach to risk management under corporate governance that can be aided by technology. Companies like Mitratech are developing compliance and management solutions that enhance efficiency while minimizing risk. Applications like GRC software are able to handle high volumes of historic data and provide a hierarchical information chain that’s accessible from a centralized system. This helps eliminate inaccurate or duplicate information while providing secure, enterprise-wide reporting and analysis.
The benefits of this approach for legal departments and governing boards are two-fold. A centralized, automated GRC system enables timely tracking, investigation and remediation. This help identify and manage risk faster and more effectively. Entity management is then able to have a more complete overview of operations to identify trends. This provides more accurate and timely information for auditing and compliance reporting to regulatory agencies and shareholders.