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The ethics of enterprise risk management as a key component of corporate governance

Author

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  • Elena Demidenko
  • Patrick McNutt

Abstract

Purpose - The purpose of this paper is twofold: first to add to the debate on good governance and ethics of enterprise risk management (ERM) and second to describe an ethical maturity scale based on duty and responsibility for practical implementation to ensure better governance. Design/methodology/approach - The methodology has centred on risk governance as a way for many organisations to improve their risk management (RM) practices from an ethical perspective based on responsibility and on fulfilling one's duty within the organisation. Findings - While companies in Australia, for example, are more mature than those in Russia in terms of governance systems life cycle, there are a number of common international challenges in risk governance implementation. These relate to a link between risk framework, enterprise value model and strategic planning; to a definition of risk appetite, the embodiment of RM in organisational culture, internal audit and ERM function, the evolving role of a chief risk officer (CRO) and senior management buy‐in and sponsorship of the integrated ethical RM from a chief executive officer. Practical implications - ERM – a way for many organisations to improve their RM practices – is a key component of the applied ethics of corporate governance. It has developed into a philosophy to assist organisations with the process of protecting shareholders' value while also increasing the bottom‐line profitability. Effective ERM is based on ethical risk governance. Internal audit needs to be involved in the process of integrating RM and compliance. It should maintain a degree of independence when assisting with ERM establishment. CRO is most effective when reporting to the board. Originality/value - Global companies are becoming more accountable to multiple stakeholders. It is the adoption of an ethical code to arrest the lack of clarity of roles ascribed to the audit committee and risk committee and management's accountability or lack thereof that remains the challenge across different jurisdictions. In attempting to implement good governance and meet the challenges, the paper introduces an ethical maturity scale as an internal measure that could be embedded in an organisation's strategy.

Suggested Citation

  • Elena Demidenko & Patrick McNutt, 2010. "The ethics of enterprise risk management as a key component of corporate governance," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 37(10), pages 802-815, August.
    • Handle: RePEc:eme:ijsepp:v:37:y:2010:i:10:p:802-815
    DOI: 10.1108/03068291011070462
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    References listed on IDEAS

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    1. Patrick A. McNutt, 2005. "Law, Economics and Antitrust," Books, Edward Elgar Publishing, number 1463.
    2. Martin Ricketts, . "The Economics of Business Enterprise," Books, Edward Elgar Publishing, number 3121.
    3. Patrick A. McNutt & Charlie A. Batho, 2005. "Code of ethics and employee governance," International Journal of Social Economics, Emerald Group Publishing, vol. 32(8), pages 656-666, August.
    4. Martin Ricketts, 2002. "The Economics of Business Enterprise," Books, Edward Elgar Publishing, number 2215.
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    Citations

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    Cited by:

    1. Khalid, Maizatul Akmar & Alam, Md. Mahmudul & Said, Jamaliah, 2019. "Empirical Assessment of Good Governance in the Public Sector of Malaysia," SocArXiv 84ewh, Center for Open Science.
    2. Salil K. Sen, 2020. "Decovidization through Rurbanization: The Re-development Option for Sustainable Energy Access," International Journal of Energy Economics and Policy, Econjournals, vol. 10(5), pages 515-523.
    3. Clelia L. Rossi, 2010. "Compliance: an over‐looked business strategy," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 37(10), pages 816-831, August.
    4. Mihret, Dessalegn Getie, 2014. "How can we explain internal auditing? The inadequacy of agency theory and a labor process alternative," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 25(8), pages 771-782.
    5. Enny Nurdin Sutan Maruhun & Wan Razazila Wan Abdullah & Ruhaya Atan & Sharifah Norzehan Syed Yusuf, 2018. "The Effects of Corporate Governance on Enterprise Risk Management: Evidence from Malaysian Shariah-Compliant Firms," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 8(1), pages 865-877, January.
    6. Said, Jamaliah & Alam, Md. Mahmudul & Khalid, Maizatul Akmar, 2015. "Relationship between good governance and integrity system: Empirical study on the public sector of Malaysia," SocArXiv hdcf7, Center for Open Science.
    7. Patrick A. McNutt, 2010. "Edited ethics: corporate governance and Kant's philosophy," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 37(10), pages 741-754, August.

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