Strategic Governance Risk

Patrick McConnell

This chapter provides a discussion of the important issue of Governance Risk and the various responsibilities for developing, approving and monitoring strategic risk. After discussing the various responsibilities for strategy development, the chapter lists the major activities in strategy development and finally identifies some of the major strategic governance risks that arise. To put strategic risk in context, the chapter makes extensive use of arguments for managing such risks made by banking regulators.

DIFFERENT FORMS OF CORPORATE GOVERNANCE

Before discussing the governance of strategic risk specifically, it is worth noting that there are various structures of corporate governance around the world. It is not the purpose of this book to advocate changes in corporate-governance structures but to note that some structures create more strategic risks than others. In particular, the various responsibilities of, and conflicts between, boards and senior management, particularly the chief executive officer (CEO), are important in this context.

There are two main types of board structure in large financial institutions (OECD 2015):

• 1. unitary board: a single-tier