Countries throughout Europe are embracing the principles of improved corporate governance and greater disclosure of relevant information with varying degrees of enthusiasm. Some national stock exchanges and other regulatory bodies have introduced guidelines and, in some cases, specific requirements.

For example, UK listed companies must comply with the Institute of Chartered Accountants in England and Wales' report, Internal Control: Guidance for Directors on the Combined Code, published in October 1999 and supported and endorsed by the London Stock Exchange. The UK company law review steering group discussion paper published in March, Modern Company Law for a Competitive Economy: Developing the Framework, also proposes reforms to encourage directors to take into account their responsibilities not just to shareholders but to others, including employees, customers, suppliers, the environment and the community at large.

International bodies have also been active on the corporate governance front. The European Association of Securities Dealers has issued pan-European corporate governance principles and recommendations, founded on a comparative study of national and international best practice. It identifies core principles which address six main issues:

  • protection of rights and the fair treatment of shareholders;

  • designation and working of responsible and accountable boards;

  • duties and prerogatives of management;

  • provision of adequate and verified information;

  • appropriate handling of conflicts of interest;

  • existence of a proper market for corporate control.

    And the Organisation for Economic Cooperation and Development has now adopted its new Guidelines for Multinational Enterprises, incorporating corporate governance principles, including timely and accurate disclosure of all material matters regarding the corporation, such as the financial situation, performance, ownership, and governance of the company.

    Sound systems of regularly reviewed internal controls, evaluation of important business risks and disclosure are key components in today's corporate governance mix. Pressure is growing for companies to be run in the best interests of all key stakeholders - customers, environmental groups, institutional investors, retail investors, non-government organisations and staff.

    There is a growing realisation that companies that do not subscribe to best practices of corporate governance and risk management may lose the support of institutional investors. However, on the positive side, companies have a real opportunity to differentiate their organisations by demonstrating high standards. Indeed, a recent investor opinion survey produced by McKinsey & Company in cooperation with the World Bank, shows that 75% of respondents view board practices as at least as important as financial performance when evaluating companies for investment. Over 80% said they would pay more for a well-governed company than for a poorly governed company with comparable financial results.

    Against this background, companies are now being presented with a more complex mix of risks than ever before. The ways in which most do business and, indeed, their very structures are changing rapidly. Mergers, acquisitions and other transactional activities are taking place at an unparallelled rate. E-commerce has begun to transform the way that many interact with suppliers and customers. There is increased appreciation of the value of intellectual property and brand and corporate reputation - and of the increasing potential of threats posed by risks such as environmental liability.

    A new Arthur Andersen publication, Dare to make a difference, summarises these complexities. It points out that business risks are greater today because:

  • intangibles matter more than tangibles;

  • companies are in the middle of a war for talent;

  • technology is accelerating the pace of change;

  • globalisation means there are no physical frontiers.

    Traditionally, risk was divided into two main areas - that which could be transferred or managed through insurance or financial instruments and the normally unprotected “business” or entrepreneurial risk. The demarcation line has faded. Corporate governance is requiring companies to identify and evaluate all their substantial risks and to control and manage them - the so-called holistic approach.

    As the distinctions between the different types of risk blur, boards of management can no longer adopt a fragmented approach. It would be dangerous to do so in view of directors' growing responsibility for the way that their companies are run and the need to maintain controls at a high level.

    The pressure to introduce, maintain and review high standards of risk management would be difficult enough in times of continuity. The requirement, coming as it does at a time of unprecedented change in the international business arena, presents a formidable challenge to risk managers, their advisers and their insurers. The challenge will continue as technological advances produce as yet unenvisaged new risks in the future.

    Sue Copeman is Special Reports Editor of Global Reinsurance.