The Turnbull Report and corporate governance of risk implementation

¶ … Turnbull Report

The findings of the Turnbull report has been a requirement for businesses listed on the Stock Exchange since December 2000. The reason behind the findings of the Report mainly pertains to risks, risk management and how these should be implemented together with issues of corporate governance. The Report also provides a company with the opportunity to mitigate risks to shareholders, honestly display such risks to shareholders, and therefore attract more investors in the company. It is favorable for a company's public image to promote the integrity of their governance in terms of risk delineation and management via corporate governance.

Such governance is however also not without its own risks and challenges. The Turnbull report for example requires that all areas of risk and management be addressed in the risk management strategy. Corporate governance controls should then be made available in annual reports in order to ensure the awareness of all stakeholders.

The challenge related to this is volume and financial investment. Some companies for example tend to overload itself in terms of risk identification. In other words, while risk prioritization may be in place, the sheer volume of this detracts from its effectiveness. Furthermore, complicated and involved risk management descriptions defeat its very purpose: to mitigate risks not only to employees, but also to the company itself as well as its stakeholders. In its zeal to delineate all possible risks, however small, it is therefore possible that a company could overwhelm its stakeholders with the sheer volume and complexity of this.

Risk prioritization and clarity are therefore issues of primary importance in adhering to the requirements of the Turnbull Report. Anthony Carey for example suggests that business objectives play an important role in delineating and mitigating the most relevant risks. In this, corporate governance plays a key role. Key challenges can for example be met by clearly stating and understanding the company's objectives for the future. Risks are then determined in terms of meeting these objectives effectively. Only the risks that endanger these objectives are then addressed with full attention and focus. Such focus is beneficial in terms of mitigating relevant rather than irrelevant risks in terms of the company's future. When risks have been identified, they can then be managed in an effective and conscious manner.

Corporate governance is extremely important in determining and managing risks according to the Turnbull report. It is however also necessary to not implement governance in a haphazard and random manner. As mentioned above, governance should be implemented in a conscious and targeted manner. The key driver for this is the clarity of a company's objectives.

The benefit of corporate governance is that this can establish focus in terms of objectives and concomitant risks. A clearly delineated governance body of people can then be assigned the task of determining objectives and risks, as well as communicating these via annual reports and documentation to both the employee base and stakeholders. If this is done effectively, the result is focus.

Employees will be able to focus more effectively on their individual tasks, as they will be aware of how these benefit the company as a whole and therefore their well-being as employees as well. Stakeholders benefit in terms of confidence in their investments and a precise delineation of the investment security that the company can offer them.