Enterprise-Wide Risk Management and Corporate Governance

Abstract

Enterprise-wide risk management is emerging as an empirically tested means of managing the full spectrum of risk throughout the business enterprise. This article reviews the history and best learning regarding enterprise-wide risk management. It concludes that enterprise-wide risk management can enhance the financial performance of the firm as well as the ability of capital markets to respond to risk, but that,unfortunately, corporate governance standards are unlikely to evolve in accordance with this learning. Thus, the subprime meltdown demonstrates that too often firms ignore learning regarding the best means of managing risk. This article therefore suggests enhanced disclosure mandates regarding firm practices in connection with risk management as a means of facilitating enterprise-wide risk management practices.

JEL Classification: G3, G38, K22