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Question:

What is the Risk of Management ?
 
 

Answer :

Introduction

Risk management is the process of ensuring that an organization is not exposed to potential threats that might lead to decreased profits or dissolution. On the other hand, cooperate social responsibility is an obligation that an organization takes upon itself not because it is entitled to but because it has the interest of the community at heart. The modern business world has evolved in a way that corporate social responsibility has become a norm to many organizations. However, what is more, astonishing is that corporate social responsibility is not only a good will from organizations communities but also a strategy of minimizing risks. An organization that makes cooperate social responsibility its norm prevents itself from potential risks that can be caused by the community. An organization that is determined to thrive in the modern competitive business world ought to have strategies that guide it towards managing the potential risks that might come its way. In many instances, a close relationship has been identified between cooperate social responsibility and risk management. Therefore, it is advisable for any given organization to be cooperate social responsibility conscious so as to be able to deal with any potential risk effectively.

Risk Management

In the recent past, risk management has been diversified through social responsibility and corporate governance. Shareholders in the new corporate world are obliged to gaining when managers who perform leadership in their organizations of investment offer governance to their investments through corporate social responsibility. Shareholders also do gain when a firm distributes its resources through participation in social activities and initiatives (Paul, Craig and Jared 2008). This is a clear sign that there exist a mutual relationship between corporate social responsibility and risk management. This paper highlights some of the relationships that are there between the three but before that let’s first get a touch on each of them

The concept of CSR.

Corporate social responsibility, commonly abbreviated as CSR, is considered a responsibility for the purpose of creating an impact in the society which dwells on maximizing the positive impact and minimizing the negative impact (Wisser 2010, p. 56). Different approaches have been laid in place on CSR, but the most conspicuous one is the one that defines CSR as an approach to which businesses get to appreciate the existence of the environment and civil considerations in their actions for influence on the society. About this concept, corporate social responsibility activities are intentional and depend on the will of the company (Wisser 2007, p. 45). Corporate social responsibility is not only connected to businesses but also perceived by other organizations which are non-business such as governments and much more.

 


Concept of Risk Management and Corporate Governance

Risk management plays a big role as an aspect of corporate governance especially in the business world. Corporate governance in the business terms can be described as a combination of rules and guides by which the stakeholders in business are assured of gaining from their investments. Corporate governance has a great impact on the risk management of an enterprise (Maciej 2015, p. 32). Risk management is currently no longer a separate exercise as it used to be back then; it has evolved to becoming part of the planning process in a business entity. Anyone in an organization who has the responsibility of achieving an objective also has a responsibility of managing the risk associated with the objective (Kythle and Ruggie 2005, p. 45)

Management of risks is an integral part and parcel of good business practices. It has been carried out on an ongoing and informal basis by many organizations in the previous past, but due to the new business trends, things have changed. Risk management has developed as a professional and technical subject in some key areas, namely finance, health, and safety, clinical and environmental. Organizations are on the high verge of facing a variety of risks including financial risk, operational risk, reputation risk, regulatory and information risk which need to be solved by inclining them with corporate governance.

CSR and Risk Management

Finding connections between corporate social responsibility and risk management is a hard task because most of the times without a deeper analysis these two concepts are remote and do not have much prevalent wise (Kartazias 2011, p. 32). As discussed earlier, corporate social responsibility has one main goal which is to increase positive influence which in one way or another can be perceived as a means and an appropriate approach to risk management. This concept is neither a centralized nor a unified approach, and depends significantly on the risk under consideration. On the other hand, corporate social responsibility should be managed using convenient and applicable instruments. (Husted 2005, p. 174).

Corporate social responsibility is made up of many factors which may influence a business activity; this may include; economic basis such as managing value of business, environmental basis such as availability of resources. Legal basis such as the presence of rules, regulations cultural bases such as organizational behavior, system values and personal capacity such as how individuals approach organizational matters (Bebbington 2008, p. 15). Firms with ardent corporate social responsibility engage themselves in managerial practices like shareholder management and assessment of the environment (Husted 2005, 178). Corporate social responsibility ventures provide a way of reducing the negative business risks and thus are regarded as essential elements in the management of risk of an organization or cooperation.

Risk Management and Corporate Governance

 


Both concepts are mainly related to the common fact that they both focus on achieving objectives. Risk management is also a tool for creating control of the environment. It, in turn, provides assurance to managers that the objectives of organizations are to be achieved within a residual risk thus making risk management the key component of corporate governance. In short risk management presents resilience which is caused by the gluing together of the organization towards achieving the organizational objectives by corporate governance (Paul, Graig, and Jared 2008, p. 32). Risk management develops risk treatment plans similar to the strategies and controls associated with each objective.

There is an increasing concern in the current business world that corporate governance has a growing effective influence on the risk management approach taken by an enterprise. Several large financial Institutions worldwide which were booming and blossoming back then are not in existence, and have been overwhelmed by other newer institutions. This is precisely as a result of the fact that most of them neglected the fundamental rules of risk management and monitoring or control by not incorporating corporate governance in their risk management processes (Karatzias 2011, p.2). Managing risk has become an important element of consideration for executives and companies, especially those with a profit making motive.

 


Corporate Governance and CSR

A traditional view of the two suggested that there was a contradiction between corporate social responsibility as well as Corporate Governance. Corporate Governance is associated with the maximization of profit and the distinct protection of shareholders.  Stakeholders provide capital to the organization, while corporate social responsibility approach is against maximization of profit since it considers set of actions beneficial only to the external stakeholders that may not be good for a shareholder. But with the changing trends in the business patterns of the new day corporate world, Corporate Governance is now being incorporated in firms, and CSR is gradually getting incorporated into the company’s corporate governance practices. This relationship of CSR and corporate governance enables Corporate Governance to be dictated by ethical considerations as well as the need to foster accountability. This also ensures that current business practices are run through corporate governance principles. In the modern business environment, both Corporate Governance approaches and corporate social responsibility concepts are more focused on moral and ethical practices in an organization and the general mandate of an organization toward the environment in which it operates from (Quora. 2016, p. 14).

Corporate governance most of the times, creates a platform for striking a balance between the interests of the stakeholders in a company including managers and workers. External stakeholders, especially customers, suppliers, the government and the society at large are also considered. This makes it somehow inclined with corporate social responsibility which on the other hand is a kind of business approach which contributes to the sustainability of development in a business entity by delivering of economic and environmental benefits for all stakeholders involved.

 

Conclusion

Corporate social responsibility is perceived as an aspect of improving the organizational image, and it is also actively used in the management of risk. It is not an easy task putting together corporate social responsibility and the process of risk management, but in the modern business world, CSR is becoming part of the strategy of organization usually realized through the management of risk. It is only a matter of a few months before Corporate Social Responsibility popularizes as a process of risk management. Corporate governance approaches need to specifically safeguard against explicit risk-taking in companies and other business entities. Risk management systems in the corporate world can fail in many ways due to poor corporate governance procedures. Further research is needed towards getting a clear conjoining factor between corporate social responsibility, corporate governance and risk management.

 

References

Bebbington. J, 2008. Corporate social reporting and reputation risk management, accounting, and auditing and accountability journal vol2, pp. 3.

GARP, 2012. Corporate governance and risk management. Available at: www.garp.org/media/991488/theroleofriskgovernanceineffectivemanagement_tunji_adesida_071312.pdf (accessed 3rd March 2017)

Husted. B, 2015. Risk management: real options and corporate social responsibility, Journal of business ethics vol 60, pp. 175-183.

Karatzias. V, 2011. The relationship between corporate governance and risk management during the credit crisis. The case of financial institutions. Pg. 145-156. Available at: mibes.teilar.gr/proceedings/2011/oral/12.pdf. (Accessed on March 13, 2017)

Kythle. B and Ruggie. J, 2005. Corporate social responsibility as risk management, John F Kennedy School of Government, Harvard University.

Maciej. W, 2015. CSR risk management. Available at: www.wsb.edu.pl/FORUMSCIENTIAE/forum20154/forum-4-2015-art2.pdf (accessed 13/03/2017)

Paul, G. Jared, H. and Graig, M. (2008). The relationship between corporate social responsibility and shareholder value: an empirical test of the risk management. Available at: onlinelibrary.wiley.com/doil10.1002/smj.750/abstract. (Accessed on March 13th, 2017)

Quora, 2016.What is the relationship between corporate social responsibility and corporate governance? Available at: https://www.quora.com/what-is-the-relationship-between-corporate-social-responsibility-and-corporate-govenance (accessed on March 3rd, 2017)

Wisser. W, 2007. The A to Z of corporate responsibility. London; Willey.

Wisser. W, 2010. CSR a swiecie – odrozenie media planet kompedium CSR- Niezalezny dodalek tematycny dystrybuowany z” Dziennikiem gazeta prawna,” NO 40.

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