Risk Management and Corporate Governance

[Pages:96]Corporate Governance

Risk Management and Corporate Governance

Corporate Governance

Risk Management and Corporate Governance

Volume 2011/Number of issue, Year of edition Author (affiliation or title), Editor Tagline

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FOREWORD

Foreword

This report presents the results of the OECD's sixth peer review based on the OECD Principles of

Corporate Governance. The report reviews the corporate governance framework and practices relating to corporate risk management. It covers 27 jurisdictions.

The report is based in part on a questionnaire that was sent to all participating jurisdictions in December 2012. In a second stage, the corporate governance framework and practices relating to corporate risk management in three jurisdictions (Norway, Singapore and Switzerland) were reviewed in more detail based upon a more focused set of questions and visits by the OECD Secretariat. The purpose of these case studies is to highlight national practices that may be of principal importance and particularly useful as a reference. The report was prepared by Winfrid Blaschke, Daniel Blume, Hans Christiansen and Akira Nozaki, and was conducted in co-operation with the OECD Working Party on State Ownership and Privatisation Practices (WP SOPP).

The OECD corporate governance peer review process is designed to facilitate effective implementation of the OECD Principles and to assist market participants, regulators and policy makers. It is carried out through an exchange of experiences and expertise that provides participants with an overview of existing practices and approaches and an opportunity to identify good practices that can stimulate and guide improvements. The reviews are also forward looking, so as to help identify key market practices and policy developments that may undermine the quality of corporate governance. The review process is open to OECD and non-OECD jurisdictions alike.

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TABLE OF CONTENTS

Table of contents

Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Chapter 1. Risk management governance framework and practices in 27 jurisdictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.1. Background to the review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.2. Scope of the review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.3. The perspective of the OECD Principles and Guidelines . . . . . . . . . . . . . . . . . . . 11 1.4. Corporate governance and the financial crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.5. Risk management practices in listed companies . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.6. Risk management practices in state-owned enterprises . . . . . . . . . . . . . . . . . . 20

Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Chapter 2. Norway: The corporate governance framework and practices relating to risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 2.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 2.2. Risk management standards and codes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 2.3. The role of Norwegian boards of directors and board-level committees . . . . . 37 2.4. Risk management policies and structures in Norwegian companies . . . . . . . . 38 2.5. External assessments of the risk management framework . . . . . . . . . . . . . . . . 42 2.6. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Chapter 3. Singapore: The corporate governance framework and practices relating to risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 3.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 3.2. Risk management standards and codes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 3.3. The role of the board of directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 3.4. Structure and organisation of the risk management system . . . . . . . . . . . . . . . 56 3.5. Risk management policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 3.6. Independent assessment of the risk governance framework . . . . . . . . . . . . . . . 61 3.7. The role of shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 3.8. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

Chapter 4. Switzerland: The corporate governance framework and practices relating to risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 4.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

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TABLE OF CONTENTS

4.2. Risk management standards and codes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 4.3. The role of Swiss boards of directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 4.4. Risk management policies and structures in Swiss companies. . . . . . . . . . . . . 78 4.5. External assessments of the risk management framework . . . . . . . . . . . . . . . . 80 4.6. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

Annex A. Financial stability Board: Sound risk governance practices . . . . . . . . . . . . . . 87

Tables 1.1. Risk governance requirements/recommendations for listed companies . . . . . 19 1.2. Risk governance requirements/recommendations for non-listed SOEs . . . . . . 25 3.1. Singapore ? Key measures of updating corporate governance framework . . . . 52

Figures 1.1. Companies with a committee with explicit reference to risk (2010) . . . . . . . . . 18 3.1. Singapore ? Market capitalisation (% of GDP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 3.2. Singapore ? Composition of the SGX listed companies (July 2013). . . . . . . . . . . 51 3.3. Singapore ? Overview of the regulatory framework for risk management . . . . 53 3.4. Singapore ? Key risk factors identified by listed companies and Temasek . . . . 60 4.1. Composition of Swiss equity indices (mid-2013). . . . . . . . . . . . . . . . . . . . . . . . . . 73

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