Financial Risk Manager Part 1
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Which of the following statements best describes corporate governance in today's business world?
Other
Community
TTanishq
A
The process by which the board of directors delegates duties to hired professionals who oversee the day-to-day running of the company.
B
The system of rules, practices, processes, and regulations guiding risk managers when determining a company's risk appetite.
C
The system of rules, regulations, and processes by which a company's board of directors looks after the needs of various stakeholders within the broader agenda of meeting business objectives.
D
The tools used by the board of directors to drive business strategy, corporate responsibility, and streamline the interests of the company's shareholders.
Explanation:
Explanation
Corporate governance is indeed a system of rules, regulations, and processes that guide a company's board of directors in managing the affairs of the company. It is designed to balance the interests of the company's many stakeholders, such as shareholders, management, customers, suppliers, financiers, government, and the community.
Why Choice C is correct:
- The board of directors is responsible for looking after the needs of various stakeholders within the broader agenda of meeting business objectives
- This involves making decisions that affect the direction of the company, setting strategic goals, and ensuring they are met
- The board oversees the company's operations to ensure they are in line with the company's strategic goals
- This includes monitoring the performance of the management and taking corrective actions when necessary
- The board also ensures that the company complies with all relevant laws and regulations and maintains high standards of ethics and corporate behavior
Why Choice A is incorrect: While the board of directors does delegate duties to professionals for the day-to-day running of the company, this is only a small part of corporate governance. Corporate governance encompasses much more than just delegation, including setting company objectives, establishing policies and procedures, and ensuring accountability and transparency.
Why Choice B is incorrect: This choice incorrectly narrows down corporate governance to only risk management aspects. Although risk management is an important part of corporate governance, it also includes other elements such as strategic direction, performance monitoring and stakeholder communication.
Why Choice D is incorrect: Tools used by the board to drive business strategy or streamline shareholder interests are components of corporate governance but they do not define it entirely. Corporate Governance involves a broader set of rules and processes that ensure effective management control over corporations in order to protect all stakeholders' interests.
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