Risk Management and Corporate Governance

Risk Management and Corporate Governance

Interconnections in Law, Accounting and Tax

Edited by Marijn van Daelen and Christoph Van der Elst

In reaction to the recent financial crisis and corporate failures at the beginning of the millennium, the emphasis of the business community in corporate governance has shifted towards internal control and risk management issues. As a result, risk management discussion has reached an unprecedented level for academics and practitioners alike. This international, multidisciplinary book provides a comprehensive overview of the risk management landscape, encompassing its challenges and problems and taking stock of its influence on both companies and society as a whole.

Chapter 3: Risk Management from a Business Law Perspective

Marijn van Daelen

Subjects: economics and finance, international accounting, law - academic, corporate law and governance, tax law and fiscal policy

Extract

Marijn van Daelen INTRODUCTION 3.1 In recent years lawmakers have emphasized the importance of risk management in restoring public confidence following the corporate collapses and frauds at the beginning of this millennium and the more recent financial scandals (see Section 3.3). A short historical overview may deepen understanding of the current corporate legal framework of risk management. Section 3.2 will pave the way by describing the development of risk management over time from a business law perspective, as managing risks is part of the wider task of governing the corporation. The current legal risk management framework is still developing. Some issues that may prove significant for future revision of the legal framework are discussed in Section 3.4. 3.2 HISTORICAL DEVELOPMENT OF INTERNAL CONTROL AND RISK MANAGEMENT PROVISIONS This section provides a brief historical overview of the development of internal control and risk management provisions from a corporate governance perspective. It starts with the development of the company as a separate legal person and reduced risks for shareholders who are protected by limited liability. It then describes the separation of ownership and control and the legal responses to reduce information asymmetry and mitigate poor governance. It also looks at how the responsibility and liability of company directors for the proper performance of the duties assigned to them came to more clearly include (in the course of the 20th century) maintaining a system of internal controls and disclosing the company’s risks. 56 Risk management from a business law perspective 57 3.2.1 Pre-20th...

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