Uncertainty, often synonymous with risk, has become a growing concern for economists, policymakers, and financial institutions since the 2008 global financial crisis.
Many experts attribute the crisis primarily to uncertainty.
I feel compelled to write this article due to my personal experiences with poor governance, which encompasses corruption, conflicts of interest, economic instability, and financial losses for companies. The necessity for robust corporate governance has never been more critical.
To address these issues, I firmly believe that Governance, Risk, and Compliance (GRC) education should be regularly provided to all employees, regardless of their position, in both the public and private sectors. Without such education, transparency and control are unattainable.
Al-Thaqeb and Algharabali (2019) emphasise that raising awareness is the most effective way to handle uncertainty. It is essential for all stakeholders to possess the knowledge and understanding of GRC principles.
Lundqvist (2015) explores the relationship between risk management practices and firm performance, finding that companies with mature risk governance structures tend to outperform their peers in terms of profitability and market valuation. It is well indicated from this theory that the practices of risk management is vital. Unfortunately, it has been observed that many bankers lack awareness of GRC.
They tend to focus on their routine tasks without staying updated on market trends and GRC-related cases. This is a significant oversight by management.
For banks, enhancing the risk awareness of all employees is crucial, as regulatory bodies like the Basel Committee on Banking Supervision (BCBS, 2015) and the Financial Stability Board (2017) mandate stricter risk governance mechanisms.
Neglecting GRC can severely impact a country’s economy, as evidenced by instances of fraud, conflicts of interest, and corruption. Consider the infamous Enron scandal of 2001, where widespread fraud led to the company’s bankruptcy.
This event resulted in significant financial losses and job cuts, severely affecting the business ecosystem and economy. What lessons can today’s stakeholders learn from such past events to prevent economic downfall? The Enron case revealed that the company’s accounting fraud led to its downfall.
At its peak, Enron’s bankruptcy was the largest in US history and marked a significant audit failure. This scandal raised critical questions about the independence and vigilance of auditors, the effectiveness of financial controllers, and the ability of compliance and risk teams to identify and report internal and external risks accurately.
Enron’s collapse saw its top executives, including the CEO and CFO, imprisoned for fraud and other offenses. Shareholders filed a $40 billion lawsuit, and the company’s auditor, Arthur Andersen, went out of business.
This case underscores the importance of risk governance in monitoring and managing bank risks. Effective risk governance directly influences bank performance and stability (Lundqvist, 2015).
Banks are the cornerstone of the monetary system; mismanagement can lead to systemic collapse.
The banking industry must implement a balanced GRC framework to prevent such failures. One of the fundamental aspects of GRC is maintaining balance.
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