Fine-tuning corporate governance: putting risk management in the ESG fast lane

Since we deal extensively with the “E” of ESG, which is likened to a lizard’s severed tail in some way, companies now understand that it involves more than just planting trees or greenwashing products.

It’s about how we can achieve a better world and a better society, which is inherently tied to better governance. Companies are recognising this and are increasingly focusing on the “G” of ESG.

It all boils down to companies striving to be better entities, influencing society and the environment positively. This truth applies to companies not as abstract entities but as collections of individuals and systems, all created and maintained by people—employees.

Now, what is this governance issue that everyone emphasises? More importantly, how can we improve it?

Companies are asking, “What can I do?” even if I have only ten workers and three lathe machines. Do I need to worry about governance? Or as a startup, can I be a bit bureaucratic and overlook governance?

At this point, a great analogy comes to mind, one that could help us better position ourselves: a football team. Every football team needs a system and tactics on the field, whether it’s a top-tier, multi-billion-dollar football club, an amateur team from the third league, or even a school team.

“How do we position execution, risk management, and audit—defensively or offensively?”

Tactical formations like 3-5-2, 4-4-2, and 4-2-3-1 are well-known, and football is constantly evolving. Sometimes there’s a common consensus that football is a defensive game, and at other times, it’s better to focus on the attack to win—similar to the ongoing three lines of defense in corporate issues.

How do we position execution, risk management, and audit—defensively or offensively? No need to worry; we don’t have to choose one. There’s an optimal solution; we can use both.

Companies sometimes need to be highly defensive and, at other times, play an attacking game to avoid being too conservative. At this point, I believe risk management plays a crucial role, acting like a gear in companies to adjust the correct appetite and governance within the organisations.

Risk managers contribute to the independence and transparency of the company to outside stakeholders. They are not just outsiders; they are great colleagues for execution, engaging in calculating risk for the business.

“Risk management should lead in corporate governance, increasing maturity”

Similar to versatile players in football or basketball, risk managers should possess a profile that allows them to be placed anywhere—midfield, attack, or defense.

In summary, the governance of ESG has main pillars: shareholder engagement, accounting transparency, risk management, and compliance, which includes ethical business practices.

Risk management should lead in corporate governance, increasing maturity. This not only enhances the intangible value of a company but also positively impacts financing, share prices, and attracts investors.

Finally, there’s no need to be concerned about discussing all these aspects. Some may argue that there’s no one correct answer for a better corporate structure, that everything is subjective.

“Risk managers should possess a profile that allows them to be placed anywhere—midfield, attack, or defense”

On the contrary, discussing all these elements is healthy; it helps us continuously find and improve for the ultimate best.

As one of my bosses once said, “Risk management is an art.” At that time, I thought he was exaggerating, but now I understand. Art evolves, and at every stage, it discusses these issues.

Caravaggio was criticised for being too realistic and perhaps pessimistic, but without him, we wouldn’t have Rembrandt or Peter Paul Rubens. Without the Romanticism of 18th-century artists, we wouldn’t have Giacometti statues.

Corporate management is alive, revising itself, and evolving, much like us.