Risk management: Key to good corporate governance

Businesses have always needed to safeguard valuable corporate assets and information. Today, the asset register includes the corporate-wide network together with its electronic information systems.

Its value to the company is almost incalculable, says Annette Hieber, a director of Bytes Business Solutions, as it encompasses the company`s "knowledge repository" as well as internal control systems and methodologies, the power of which can be harnessed to build more robust, profitable and powerful business operations in future.

"Loss of any one element of the network and its stored data will place the company at significant risk. Identifying risks, understanding their associated costs and managing them is central to good corporate governance as highlighted in the King II report and the JSE`s Listing Requirements Guidelines," she says.

According to Hieber, there are a number of risks that all companies face. These include supplier risk, in which supply chain management plays a critical role, and internal/operational risk in which human resources and the HR infrastructure and related processes fall under the spotlight.

Then there is customer risk, with associated credit risk and variable marketing costs.

"In order to mitigate against these risks, organisations need to introduce IT systems and processes that are auditable and in which all changes in the IT environment are tracked and managed effectively," she says.

"In this regard, IT systems that are sustainable and processes that are repeatable must be implemented.

"Most important are complete transparency in all transactions, a thorough visibility of the enterprise and solid, enquiry-proof reporting procedures."

Hieber adds that risk management is important because it closes the loop between strategic initiatives targeted at future developments and day-to-day operational performances. It also provides the foundation for dynamic goal setting, balanced scorecards, and guided analysis.

"All these issues are central to the quest for good corporate governance and to promote greater corporate accountability, transparency and stakeholder confidence."

Hieber says there are calls - from many sources in both the public and private sectors - for increased accountability of company directors for the accuracy of information relating to - among other issues - audited risk exposure.

"What`s more, King II recommends that organisations report on a `triple bottom line` which covers the social, economic and environmental aspects of the organisation - and not only on financial performance.

"Social aspects involve values, ethics and the reciprocal relationship with stakeholders other than the shareowners of the company.

"The environmental aspects include the effect that the product or services produced by the company have on the environment.

"And economic aspects refer to the financial performance of the company," she explains.

Hieber maintains that the "balanced scorecard approach" is best for tracking and analysing organisational performance and risk.

"If executed correctly, users get an immediate and intuitive view of current status with stoplights and trend arrows that show current performance versus predefined thresholds.

"It allows managers to review the current status of any project or activity and focus on the most important issues by sorting goals by status, trend and initiative," she adds.