A Director’s Guide to Corporate Risk Management: Implementing a Comprehensive Strategy

Published in Corporate Financing, vol. 11, no. 2, 2004.

The spectacular corporate failures of the past five years have increased directors’ interest in corporate risk management. Directors understand that risk management is mission critical, and that failing to manage risk effectively can result in legal and regulatory sanctions, shareholder litigation and precipitous plunges in shareholder value. Directors also recognize the need to commit considerable time to their duties as directors, and appreciate that they risk substantial embarrassment if accused of not adequately performing their tasks.

Directors can reduce the risk of failure only if they understand the comprehensive nature of a risk management strategy and take deliberate steps to implement the strategy. Effective risk management should provide confidence that the board has