Corporate Governance Is not Safe from Black Swans

Corporate Governance Is not Safe from Black Swans


A lack of risk culture among top management is not a major problem anymore in listed firms. Yet a gap still separates awareness and practices. “Risk management is one thing, risk governance is another”, says Sergio Beretta, Professor of Planning and Control Systems. “Risk management devises specific measures to deal with risks. At top management level, however, there must be a risk management strategy providing skills and resources to the organization. According to the most recent studies on large firms, there is still a huge gap between the awareness on risk and the work done to set up an integrated risk management system”.
Current corporate governance codes feature chapters on risk management that are too generic and oversimplified. Professor Beretta pinpoints two major problems. “First, there is no comprehensive definition of all contexts of risk exposure. Three different contexts must be taken into account: those in which we have a reasonable knowledge of both the chance of occurrence and the expected impact of known risks; those in which we know the existence of risks, but we do not know their impact; those in which we are not aware of the risk exposure. The so-called black swans belong to the latter category. They are unexpected and yet have catastrophic effects. The guidelines do not mention these contexts or the way to deal with them”.
The second problem is risk appetite, that is the quantification of the amount of risk that a firm is willing to take. In order to spread awareness on risk appetite, it has been defined in a very generic way that is of little help in implementing it at the operational level. “We must rethink risk governance”, professor Beretta concludes. “Today, it is not adequate to deal with all the risks inherent in businesses”.

Read more about this topic:
Massimo Marinacci. Understanding Risk in Companies and Our Lives
The Real Trouble Starts When We Think We Can Calculate Everything
A Bridge Where Decision Theory Meets Risk Analysis
Policy Makers React to Ambiguity Like Other Humans Do
No Economic System Is Safe. Shocks Travel Quickly and Unexpectedly
When International Trade Increases the Chance of Conflict
With the Monte Carlo simulations, an epochal revolution in the probabilistic risk assessment of business plans has arrived
How to Make Your Non-performing Loans Harmless
New Sanitation System Can Half Healthcare Associated Infections and Reduce Related Costs by 75%

by Claudio Todesco


All News
  • Economics Research, Bocconi in the European Top 5

    In the Tilburg University ranking of the best universities for scientific performance in economics research, Bocconi is 4th in Europe, 1st in continental Europe, and 18th in the world  

  • Lockdown Measures Are Not the Only Things Keeping Us at Home

    Two Bocconi MSc students, in a team with two Oxford PhD students, had their paper published in two prestigious outlets. Observing mobility data from mobile devices, they found that people in the US often distanced themselves before official measures were imposed in counties with high education, high trust in science and high income  


  May 2020  
Mon Tue Wed Thu Fri Sat Sun
        1 2 3
4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24
25 26 27 28 29 30 31


All Seminars
  • Imperfect Macroeconomic Expectations: Evidence and Theory

    Marios Angeletos (MIT) Paper


  • The Commission's proposals for the Multiannual Financial Framework and the Recovery Instrument
    The EU Response to the Covid Crisis

    Chair Eleanor Spaventa, Bocconi University Speakers Mario Monti, President, Bocconi University; Catherine De Vries, Bocconi University; Guido Tabellini, Bocconi University To register, please contact