Risk Management and Compliance

AuthorBert Spector
ProfessionProfessor of Strategy at Northeastern University
Pages87-101
Risk Management and Compliance 87
CHAPTER 7
RISK MANAGEMENT
AND COMPLIANCE
Ask directors of corporate boa rds what keeps them up at night, and the
answer typically comes down to one word: risk. Unanticipated, unknown dis-
ruptio ns caused by both ext ernal a nd interna l factor s: tsunam is and gove rn-
ment actions as well as financial reporting m istakes and even fraud. Then
ask a follow-up question: other than shareholder value and bottom-line per-
formance, what should boards pay the most attention to? The answer comes
back: risk management. Clearly, risk is a topic that demands consideration.
Risk management has important legal ra mifications. Counsel is often
involved in crafting a response when companies are forced to deal with the
negative cons equence of risk a nd noncomplianc e. Further more, general
counsel is typically par t of the firm’s executive committee that assumes
primary oversight of companywide risks. To help appreciate the challenge,
this chapter will address two ty pes of risk: decision-making risk and fi nan-
cial controls risk.
The Nature of Risk
Business decisions—whether to invest in a new product, move to a new over-
seas market, buy or sell an asset, chang e a supplier, and so forth—involve

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