Published online by Cambridge University Press: 05 June 2012
Contemporary institutions are exposed to a variety of risks ranging from natural catastrophes and uncontrolled human behaviours to different strategic exposures that may hit the organization in unexpected ways. This chapter describes, partially by illustrative examples, the diverse nature of the corporate risk landscape and how related exposures seem to increase. The chapter discusses how different approaches to risk management may enable corporate executives to deal more effectively with these important challenges. The relationship between positive risk management outcomes and performance is explored and the question about uncovering an effective risk management model is developed.
The nature of risk management
Risks are everywhere, as evidenced by many corporate events reported in the popular press, including major corporate scandals around once venerable companies like the Maxwell group, Baring Brothers, WorldCom, Enron, Parmalat and so on. We also witness a steady increase in man-made disasters around the world and even the emergence of mega-catastrophes caused by wilful human actions that have both direct and indirect economic effects. These developments have intensified our focus on corporate and public risks and the risk management processes that may be needed to circumvent the adverse economic impacts from such events. All the while, we have seen a public risk perception aimed at reducing system errors, operational malfunctions and uncontrolled human behaviours that affect the way in which we try to deal with corporate risks.
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