Responsibility and Authority: Workplace Risk Matters in Corporate Governance in the United Kingdom. When Will the United States Get on Board? (Management)

Article excerpt

A company's system of internal control has a key role in the management of risks that are significant to the fulfillment of its business objectives. The internal control system should: [1] be embedded within its operations and not be treated as a separate exercise; [2] be able to respond to changing risks within and outside the company; and [3] enable each company to apply [its internal control system] in an appropriate manner to key risks." (1)

You have heard this all before in textbooks, training manuals and corporate policy manuals. So what is special about hearing it again in this column? The answer is that this is a quote from a report of unprecedented scope and reach. Its impact on corporate governance could be profound.

Turnbull Report

The Turnbull Report (2) is a landmark document for the following reasons: It requires companies to identify, evaluate and manage their significant risks and to assess the effectiveness of the related internal control system; and, most importantly, the responsibility to do this is placed squarely in the laps of boards of directors.

Let me repeat that: The board of directors, under this system, has the responsibility to oversee corporate risk assessment and control.

So what is the big deal? The big deal is that the London Stock Exchange issued this report, and compliance is now mandatory for all its listed companies.

The next question you should ask: "Why is the stock exchange interested in this?" The easy answer is that a company that has its board of directors actively involved in the assessment and control of risks is more likely to make a profit.

The less obvious answer is that the stock of a company that conforms to this guidance document is more likely to be a good investment. Make no mistake about it: the London Stock Exchange is there to make sure that its members are good investments not just in the short term, but with a sustainable future.

Why should we believe this? All we have to do is look at the plummeting price of the stock of Ford Motor after the twin shocks of the Rouge Steel explosion and the Explorer-Firestone debacle. Compare that to the soaring price of 3M stock after it stopped the production of its highly profitable Scotchguard line of products because the residue might, in some barely foreseeable remote future, be a threat to public health or the environment.

The bottom line here is that corporate governance counts, and governance begins and ends with the board of directors. Print those statements and hang them on your office wall.

Nothing Like It in U.S.

The next question is, "How should such a system be implemented?" A marvelous guidance document is available from the Institute of Chartered Accountants in England and Wales. …

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