Corporate Governance – Financial Risk

Welcome to The Opportunity Group (TOG), your trusted expert for corporate governance and financial risk services.   

Introduction – Background

One of my key responsibilities as a former federal banking regulator was to ensure the safety and soundness of financial institutions, including commercial banks and non-bank financial institutions. During my forty-plus years of evaluating banks and their clients, I have discovered that any organization’s management quality is paramount to its success. Whether the organization is a financial institution, a real estate development company, or a firm providing professional services, an effective governance structure is essential for continued success and growth.

I have observed that good governance is one of the primary drivers in improving economic efficiency and continued growth for businesses. It also improves and maintains investor confidence, which is necessary for the proper functioning of a privately-owned business to succeed in a market-driven economy.

Definition of Good Governance

The Office of Economic Cooperation and Development (OECD) defines governance in the following manner:

It is a set of relationships between a company’s board of directors, its management, its shareholders, and other stakeholders. It also provides the structure through which the company’s objectives are set, the means for attaining these objectives, and how these results are monitored.

I believe that an effective corporate governance system is necessary for the proper functioning of a private sector economy. An adequate system of governance results in a lower cost of capital, which in turn encourages businesses to use their resources more efficiently.

Best Practices

Over the past several decades, I have observed that where governance is strong, problems are addressed quickly and early. Where governance is weak or nonexistent, issues can remain uncorrected, resulting in a company’s poor performance or, ultimately, failure if the problems continue. The following best practices are necessary to ensure a healthy and robust governance program:

  • A majority of the directors are independent of management;
  • The company has adopted a strategic plan that defines the company’s operating philosophy, and the plan is updated annually;
  • The company has an independent audit function (even if part-time) that reports directly to the entire board or an audit committee;
  • The company has adopted a code of ethics or conduct;
  • The company has a suitable committee structure which is consistent with its size and complexity of operations;
  • The company has the ability and authority to hire independent experts as warranted,
  • The company has an orientation program for new directors and
  • The company has a formal succession plan that is reviewed and adjusted annually.

Following the financial crisis in 2007-08, many companies started to pay more attention to governance and risk management activities. However, we have observed that existing risk governance standards for publicly traded and large private companies still primarily focus on internal controls and audit functions, which only uncover issues after the fact.

It is readily understood that risk-taking is fundamental in building and operating businesses, and I applaud those undertaking uncertainty in operating a business. However, we believe that the cost of risk management failures is often underestimated, including the time and money required to remedy a failure to understand risk identification properly. Attention should be given to financial and non-financial risk, and risk management should include strategic and operational risk.  

The team at TOG offers comprehensive corporate governance and financial risk services tailored to meet the unique needs of each organization we serve. We aim to ensure that your organization adheres to the highest integrity, transparency, and accountability standards. Our extensive experience makes us well-equipped to handle a wide range of complex governance issues, providing you with the guidance and support necessary to navigate today’s challenging business environment.

Conclusion

One of the core components of our corporate governance services is our role as expert witnesses in various disputes. Our team of seasoned professionals is adept at offering specialized knowledge and credible testimony in legal proceedings.

We have a proven track record of assisting clients in cases involving internal investigations related to the breakdown of corporate governance reporting structures. Our expert testimony helps to clarify the intricacies of governance failures, providing valuable insights that support the resolution of disputes.

Contact us today to learn more about how our corporate governance and financial risk expertisecan benefit your organization. Whether you need expert guidance on governance or financial risk issues, The Opportunity Group is here to help you achieve your goals and drive sustainable success.

Written by Terry L. Stroud – August 2024