How are risk management and corporate governance connected?


For those who know the meaning of both terms - Risk Management and Corporate Governance, question of how are they connected may seem obvious at the first look. But when we go deeper we figure out about hidden parts that if we don't explore, we may put our organization at a huge risk!

There are certain types of risks that are more connected to board members and consequently corporate governance.

For example, reputational risk! Thanks to internet and social media, news get spread in seconds and reputations of big organizations can get influenced accordingly.

Last week, we all heard about Steve Easterbrook the CEO of McDonald. He resigned because McDonald's board members were not willing to put the company at risk. The relationship between the CEO and one of the employees was out of the company's rules and the board members decided professionally.

Even though Steve Easterbrook doubled the value of the shares since he took over, the board wouldn't like to take a risk on the reputation of the company. Basically, they had two options: either they had to fire their CEO or they had to take the risk of reputation and ruin the internal and external atmosphere of the company.

What shows the connection doesn't end here! Surprisingly, Walmart asked Steve Easterbrook to step down from board too. Here you can read more.

To speak more practical, another story happened to WeWork. The company was valued $ 47 billion and only in 6 weeks, the value decreased down to 70%. The CEO of SoftBank as the main investor recently agreed that trusting the company was not a good decision as Bloomberg reported.

WeWork was a big lesson in corporate structure problems and corporate governance. Adam Neumann had huge power in decision making and exactly this issue put the company at a huge risk and bankruptcy.

There are many other case studies regarding the connection of risk management and corporate governance. As long as company structures and corporate governance are ignored we can say that all companies are at big risk even if SoftBank or other big investors with million dollars are backing them up!