Risk management in corporate governance: A review and proposal

Abstract

Manuscript Type: Conceptual Research Question/Issue: In this paper we identify and discuss the relationship between corporate governance and risk management of high technology firms, with publicly listed Australian biotechnology companies as a case in point. We present a governance structure that better manages the numerous complex risks such companies face. Research Findings/Insights: Audit committees are traditionally responsible for oversight of auditing matters relating to the company's financial systems and risk management relating to financial reporting. While the audit committee needs to have a full understanding of the risk management system in order to be able to assess the overall risk profile of the company we illustrate that the complex risk and regulatory environment high technology firms face may necessitate the creation of a separate risk management committee to interface with and assist the board and audit committee. Theoretical/Academic Implications: We provide evidence that the traditional governance model is inadequate in today's complex business environment, particularly for high technology companies. By analyzing the legislative, industry, and complex risk environment faced by these firms, we posit that the traditional model may need to change to meet the demands of a wider definition of governance that specifically incorporates risk management. Practitioner/Policy Implications: Against a backdrop of corporate collapse, increasing corporate regulation and reporting, risk management and oversight has been a recent addition to the role of the board. It is not inconceivable that capital market regulators may require reporting on risk management and the creation of a separate risk management in the future. © 2009 Blackwell Publishing Ltd.