CORPORATE GOVERNANCE AND THE DUTY OF CARE
Looking into risk from the perspective of the boardroom demands a note on the concept of corporate governance itself and the resulting implications. Shareholders are the principals and need to have their rights protected; management is nominated and put in place to implement the strategies demanded of them, and take care of the business on a daily basis. However, the well-known “agency problem” may arise between the shareholders and management, typically due to a number of reasons: (1) shirking - inadequate duty of care on the part of the executive management; (2) self-dealing - the use of company assets for personal benefit; (3) taking perks - management taking non-legitimate advantage of the position they hold; (4) management entrenchment, or (5) so-called empire-building, not always aligned with the principal's interests. To overcome these typical problems, the common mechanism is for the shareholders/owners to put a board of directors in place to supervise and look after the shareholders' interests.
However, regardless of the board directors in place, there is a growing demand for a special duty of care relating to organisational risks, and the role the board of directors has in taking responsibility for it. Moreover, these days some board directors or candidates view board director positions as less attractive, because
