Risk Management System - Extension from Static to Dynamic Approach in Corporate Governance Concept

Corporate governance has been widely acknowledged as an effective way of improving corporate performance and balancing stakeholders’ interests. Commonly, the definition of corporate governance incorporates two essential elements: structure and process. From the structure perspective, corporate governance is embodied in a set of institutions, delegation of authorities, policies, rules, and codes as main pillars determining compliance level of organizations to corporate governance standards and best practices. This perspective has been dominating in the development of corporate governance.

Corporate governance principles, implementation guidelines, and assessment indicators released by various authoritative bodies such as OECD, The Business Roundtable, and Asian Roundtable on Corporate Governance describe the requirements for institutions, delegation of authorities, policies, rules, and codes to be fulfilled by any organization in order to be in full compliance to corporate governance standards and best practices (Asian Roundtable, 2006; OECD, 2006; OECD 2003; The Business Roundtable, 2002).

Indeed, the structure perspective does not capture the holistic view since it explains merely a static model of corporate governance which emphasizes the condition of corporate governance at a moment of time. The whole picture of corporate governance can be fully comprehended only with further explanations regarding ‘why, how and what for’ the organization should fulfill the requirements and conditions for corporate governance at certain times.

Focusing only on the structure perspective of corporate governance may deviate organization from achieving two interrelated goals: improving corporate performance and balancing stakeholders’ interests due to the limitation and flaws of static corporate governance approach.

Elaborating major flaws of static corporate governance model and extending it into a dynamic model focusing on risk management. The extended model will capture the holisticview of corporate governance as an interlocking system that relates corporate governance components, risk management, and business processes.

Limitation and Flaws of Static Model

Detail analysis on static model can be performed in three interrelated aspects: (i) relationship among corporate governance, risk management, and business process and performance management; (ii) adaptability to organizational diversity; and (iii) the extent of involvement of all related parties. The analysis emphasizes in the capability of the model to pass the following criteria:

• Integration and interdependencies of corporate governance, risk management, and business processes
• Degree of inclusiveness and dynamics of corporate governance process
• Adaptability of corporate governance framework to organizational diversity
• Value of corporate governance

The above criteria ensure the relevance of corporate governance to the achievement of corporate performance and balancing stakeholders’ interests. Integration and interdependencies determine how much an organization can benefit from the efficiency of and synergy in various initiatives within an organization towards achieving business goal. Degree of inclusiveness and dynamics of corporate

governance process have significant influence in aligning people within and across organization in

support of creating values to the organization. Adaptability of corporate governance framework to organizational diversity is an essential requirement for full acceptance and willingness from organization having specific uniqueness each of which has a leverage to modify corporate governance structure and process that fit such uniqueness. Value of corporate governance should be taken into consideration as much important as, if not more than, consideration for compliance to rules and regulation.