Research Insights About Risk Governance

Therese R Viscelli,Mark S Beasley,Dana R Hermanson

doi:10.1177/2158244016680230

Abstract

In recent years, expectations for increased risk governance have been placed explicitly on boards of directors. In response, boards are being held responsible for not only understanding and approving management’s risk management processes, but they are also being held responsible for assessing the risks identified by those processes as part of overseeing management’s pursuit of value. These increasing responsibilities have led a number of organizations to adopt enterprise risk management (ERM) as a holistic approach to risk management that extends beyond traditional silo-based risk management techniques. As boards, often through their audit committee, consider management’s implementation of ERM as part of the board’s risk oversight, a number of questions emerge that can be informed by academic research related to ERM. This article summarizes findings from ERM research to provide insights related to the board’s risk governance responsibilities. We also identify a number of research questions that warrant further analysis by governance scholars. It is our hope that this article will spawn varying types of research about ERM and corporate governance.

Highlights

Expectations have risen for effective risk oversight, especially during the recent financial crisis, and most of those expectations have been placed explicitly on the shoulders of boards of directors
We summarize in column C of Appendix B a number of potential research questions related to the role of culture in enterprise risk management (ERM) that governance scholars may want to examine
ERM is emerging corporate governance topic, for boards of directors as they respond to increasing expectations for more effective risk governance

Summary

Introduction

Expectations have risen for effective risk oversight, especially during the recent financial crisis, and most of those expectations have been placed explicitly on the shoulders of boards of directors. Regulators, legislators, credit rating agencies, and industry associations have implemented changes designed to strengthen enterprise-wide risk oversight with an emphasis on enhancing the board’s role in risk governance (Dodd-Frank Act of 2010, 2010; National Association of Insurance Commissioners, 2013; New York Stock Exchange [NYSE], 2004; Securities and Exchange Commission [SEC], 2009; Standard & Poor’s [S&P], 2012). Most of these place the onus of responsibility for owning risk governance on the board. That percentage grows to 88% for public companies (Beasley, Branson, & Hancock, 2015)

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