Risk Management, Corporate Scandals and Reforms: Case Study Approach

Abstract

Problem: In today’s unstable global business environment, the significance of risk management has increased due to corporate failures and crises, raising concerns among investors and regulators. Now, effective risk management is essential for long-term sustainability and success. Despite its critical role, many organizations still show noticeable gaps in their risk management practices. Purpose: To examine the role and effectiveness of risk management subcommittees in enhancing corporate governance, specifically focusing on insights gained from corporate scandals and subsequent reforms. Data and Methodology: This study employs a qualitative research methodology and analyzes secondary data from various sources. The study uses purposive sampling to analyze major scandals. It aims to uncover the systemic causes of corporate failures and the challenges companies face in recovering from crises, despite their management efforts. Additionally, it examines successful recovery cases and focuses on governance and risk management in enhancing corporate resilience. Results: Research on corporate scandals shows that risk management is often poorly aligned with corporate strategy and inadequately assessed from an enterprise perspective. This issue stems from the absence of independent risk management committees and limited oversight by audit committees. Many boards and management teams were unaware of their company's risks and engaged in unethical profit-boosting practices. Further, Current corporate governance standards fail to mandate separate risk management committees. Research Implications: The study examines various scandals across different companies and emphasizes the significance of the Risk Management Subcommittee in corporate governance. It suggests that regulators and standard setters should view this subcommittee as a crucial element in corporate governance and risk management, as it helps mitigate corporate failures, improve governance, and prevent future scandals. Furthermore, the study emphasizes that establishing risk management subcommittees is essential for effectively implementing corporate governance practices and ensuring the long-term resilience of organizations.