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Governance, Risk Management, and Compliance: It Can't Happen to Us—Avoiding Corporate Disaster While Driving Success by Richard M. Steinberg

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Boards' Perspectives on Risk

We know that a board of directors must provide oversight and be comfortable with the company's risk appetite and risk management processes. With that said, directors' perspectives on risk and how much risk their company should take have evolved over time. Some years ago in the wake of Enron, WorldCom, Adelphia, and other debacles—along with a broad range of new laws, regulations, and rules affecting boards and their committees—directors of many companies developed a laser-like focus on compliance, accompanied by what was perhaps an unconscious and unintended but real consequence: taking a more risk-averse perspective. Seeing what happened to directors of failed companies, and concerned about personal reputation and potential legal liability, board members didn't want to suffer a similar fate. Not all boards overreacted, and the focus on compliance later became more balanced; then in recent years financial services firms certainly took on excessive risk. But at the time, an aversion to risk on the part of boards was not uncommon, affecting strategy and willingness to accept risk in pursuing opportunity.

Today it's well recognized in boardrooms that every company must accept risk in pursuit of growth, profit, and return. But the nature and amount of risk naturally vary. What has not been given attention is whether society is best served, depending on whether one takes a microeconomic or macroeconomic perspective. From a micro view—the view of one company—taking ...

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