EFFECTIVE RISK MANAGEMENT: A DRIVER OF CORPORATE STRATEGY AND CRITICAL COMMERCIAL ENABLER
In September 2024, the US Department of Justice issued an update to its seminal regulatory guidance document on Evaluation of Corporate Compliance Programs. In doing so, it continued to highlight the criticality of a corporation’s enterprise risk management and risk assessment processes and the need to have a dynamic approach in place by asking the following critical questions: What methodology has the company used to identify, analyse and address the particular risks it faces? What features of the company reduce its exposure to such risks? Is the company’s approach to risk management proactive or reactive?
Underscoring this guidance is the belief that a corporation’s commercial strategy and risk management programmes are inextricably linked. As stated in the guidance, the starting point for a prosecutor’s evaluation of whether a company has a well-designed compliance programme is to understand the company’s business from a commercial perspective, how the company has identified, assessed and defined its risk profile, including specific factors that mitigate the company’s risk, and the degree to which the programme devotes appropriate scrutiny and resources to the remaining spectrum of risks. This evaluation should account for emerging risks as internal and external circumstances impacting the company’s risk profile evolve.
Operationalising this guidance will obviously be a factually intensive and individualistic approach for each corporation. Companies should build their global risk and compliance programmes on continual improvement principles and subject it to a series of governance steps, such as having a dedicated risk management and compliance committee of the board of directors. Management should conduct bi-annual enterprise risk self-assessment reviews and continually update the committee on both regulatory, commercial and reputational risk trends at all quarterly committee meetings.
Jan-Mar 2025 Issue
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