Fundamentals of Risk Management

338

---

28
Corporate governance 
model
Corporate governance
Corporate governance covers a very wide range of topics, and risk management is
an integral part of the successful corporate governance of every organization. Most 
countries in the world place corporate governance requirements on organizations. 
These requirements are particularly strong in relation to companies quoted on stock 
exchanges, organizations that are registered charities and government departments, 
agencies and authorities. For instance, companies listed on the London Stock 
Exchange have to be guided by the UK Corporate Governance Code (2014) published 
by the Financial Reporting Council.
The purpose of corporate governance is to facilitate accountability and responsibility 
for effective and efficient performance and ethical behaviour. It should protect
executives and employees in undertaking the work they are required to do. Finally, 
it should ensure stakeholder confidence in the ability of the organization to identify 
and achieve outcomes that its stakeholders value.
There are two main approaches to the enforcement of corporate governance 
standards. Some countries treat corporate governance requirements as ‘comply or 
explain’. In other words, the organization should comply with the requirements or 
explain why it was not appropriate, necessary or feasible to comply. If appropriate, 
an organization could explain that an alternative approach was taken to achieve
the same result. In these countries, the requirements may be regarded as one means 
of achieving good practice, but equally effective alternative arrangements are also 
acceptable.
Other countries require full compliance with detailed requirements, although
limited alternatives for achieving compliance are sometimes included within these 
requirements. In these countries detailed compliance is expected and exceptions 
would not be acceptable.
Corporate governance requirements should be viewed as obligations placed on 
the board of an organization. These requirements are placed on board members
by legislation and by various codes of practice. Often, these corporate govern-
ance requirements are presented as detailed codes of practice. To start the task of 
enhancing corporate governance standards, an organization may develop a code of 
ethics for company directors, together with appropriate ‘delegation of authority’