Failure to Establish Risk Management Framework Leads to Unwanted Consequences
Added on 2019-11-19
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Running head: CORPORATE LAWCorporate LawName of the StudentName of the universityAuthor Note
1CORPORATE LAWQuestion (a)Corporate Governance may be used to define the framework of rules , systems, processesand the relationship by and within which the authority is controlled and exercised within thecorporations. It entails the process by which the companies and those in control are heldaccountable for the activities carried out by the corporations1. A good corporate governancepractice builds up confidence in the investors, which leads to significant investments in thecorporations and enhances the ability of the entities listed on the ASX to compete for capital. According to Principle 7 of the Corporate Governance, a listed entity is required toestablish a risk management framework and that such entities conduct periodical review of theefficacy of such risk management framework. As per this principle, the board of directors of apublic company is under legal obligation to identify risks and execute effective measures with aview to resolve such issues2. In case the board of directors fails to recognize the risks and resolvethe same, it would have an impact on the shareholders of the company. It would further result inloss for the consumers, employees and the shareholders of the company, thus, affecting theimage and reputation of the company in the society as well. The recommendations made by ASX with respect to the establishment of riskmanagement framework which requires the board of directors of a public company to establish atleast one committee to identify the risk and resolve the same. Such committee must include threedirectors who would be entitled to work without any unnecessary interventions and the ASX1Booth, Simon A.Crisis management strategy: Competition and change in modern enterprises. Routledge, 2015.2Council, ASX Corporate Governance, and A. S. Exchange. "Corporate governance principles andrecommendations . ASX Corporate Governance Council." (2014).
2CORPORATE LAWhave made recommendations having regard to the accountability for the directors in relation tothe review process. In the given circumstances, there have been allegations on the Board of Ardent Leisurefor causing the incident in Dream world that claimed many lives and that the company had failedto take immediate steps to deal with the accident effectively. The company had been criticizedfor not being able to establish safety management framework within the company. The companyhave failed to recognize the risks and resolve the risks encompassing the incident. The occupier of the premises is held accountable for any harm that may cause injuries toany person within the premises of the occupier. Accidents take place as a result of humanmistakes but under such circumstances, appropriate measures should be implemented in order toavert the harm and prevent any future harms. In the given scenario, after the accident occurred, Ifailed to implement measures to deal with the situation effectively due to lack of an appropriaterisk management framework3. If there had been an effective risk management framework, itwould have been able to recognize the risk that would arise from the rides and mitigate suchrisks on time and effectively. In the absence of an effective risk management framework, the company failed to avertthe accident that took place in the Dream World and lack of proper mitigation strategies of thecompany to deal with post accident situation have made the company subject to severalcriticisms and resulted in financial as well as reputational loss of the organization. Hence, it isestablished that the Board of Directors of the company had been responsible for failing toidentify the risks associated with the organization and mitigate the same. 3Council, ASX Corporate Governance. "Corporate Governance Principles and Recommendations, 3rd edn (ASX,Sydney)." (2014).
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