RISK MANAGEMENT

SUPPORTED BY

CORPORATE GOVERNANCE

COLOMBIA

Alfonso Parias, Risk Control ManagerOctober 9, 2007

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Risk Management

Is defined as the culture, processes and structure aimed at

obtaining potential opportunities while dealing adverse events

Culture

Processes

Structures

Introduction

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Corporate Governance

Corporate Governance is a system of guidance, established by

standard management practices which operates within a

structure of governance that has been designed for the

organization.

System of guidance

Management practices

Governance structure

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Therefore..............

Having adequate Corporate Governance practices, guidance and

management systems, culture, processes and structures are

adopted in order to obtain potential opportunities and to

handle adverse effects.

Thereby increasing, maximizing and maintaining the

organization’s value.

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Risk Management and Corporate Governance

Risk Management

Corporate Governance

Corporate Governance is the organization’s strategic

response to risk, and effective risk management is the

cornerstone of solid governance.

System of guidance

Management practices

Governance structure

Culture

Processes

Structures

=

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• Risk Management is a good Corporate Governance policy.

• Risk Management is a proactive policy.

• Risk Management is a strategic policy.

• Risk Management is compliance with rules and regulations.

Global Risk 2007 from World Economic Forum – Global Risk Network Report.

A future vision of Risk Management

Comments

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The ATLAS syndrome

Risk Management is party to Corporate Policy,

not the exclusive responsibility of one part

of the organization

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Evolution of integrated risk management

Reactive level :Reactive level : 

Neither the Board of Directors nor senior management

place sufficient emphasis on risk management

Risk management exists; however it is isolated

Risk coverage

is incomplete in some critical aspects

There is no common approach nor language for risk

management

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Evolution of integrated risk management

Tactical level:Tactical level: 

There is strong support from the Board of Directors and senior management

A Risk Committee exists

Periodically, risk profiles are determined

The need for comprehensive risk management is recognized

 

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Evolution of integrated risk management

Strategic level:Strategic level: 

There are proactive risk committees with the Board and senior management

An administration and evaluation of risks is performed throughout the entire organization

There is a common approach and language

There is an analysis of risk in real time 

Optimization and risk reports

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A new approach : 

PREVIOUSLY Presently

Risks were considered separately

Risks within the context of corporate strategy

Identification and evaluation of risk

Develops a risk “portfolio”

Considers all risks Considers critical risks

Risk mitigation Risk optimization

Limits of risk Strategies of risk

Risks for which no one is responsible

Assigned responsibilities according to the risk

Quantifying inconsistent risk

Observation and measuring

Risk is not my responsibility

Risk is everyone’s responsibility

The old methods of risk management are no longer appropriate, and as a result a new approach has been adopted:

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The greatest risk of all is to have

unknown weaknesses ……

and on account of this, it is necessary……

to design a corporate strategythat is capable of detecting unknown

weaknesses and to create a plan of action

Therefore……………

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The management of a risk administration through Corporate Governance

Establish a context

Identify risks

Analyze risks

Evaluate risks

Handle risks

AS/NZ 4360 Standard

Corporate Governance

Observation and measurement

Communication and consultation

Structure

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The key principles that support a solid Corporate Governance:

Establish solid principles for management and

supervision.

Structure the Board of Directors in a manner that value

will be added.

Recognize and handle risk.

Provide guidance .

Generate control.

To be accountable.

Determine authority.

Manage.

Supervise.

Principles related to risk management

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Corporate Governance Committees

Board of Directors

Corporate Governance

• 3 MEMBERS FROM THE BOARD OF DIRECTORS• 1 INDEPENDENT MEMBER

RiskCommittee

Appointments Committee

Corporate Governance Committee

Financial Committee

SCOPE: • Strategic risks.• Financial Risks.• Market risks.• Operational risks.• Image risks.• Legal Risks.

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Management structure for the administration of risks through Corporate Governance

Board of Directors

Risk Management

President

Corporate Governance

Risk Committee

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Character and aim of the Risk Committee

The Risk Committee is a collegiate organization with

direct responsibility to the Board, and whose aim is to

guarantee acceptable policies, mechanisms and procedures

for Risk Management.

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Functions and Responsibilities of the Risk Committee

Risk Management.

Program for Business Continuity.

Evaluation and adoption of international standards in

risk matters in accordance with recommendations from the

Bank of International Payments, the Committee for the

System of Payments and Settlement of Securities, the

International Organization of Securities Commissions

(IOSCO) and the Group of 30.

Prevention and Control of Asset Laundering and the

Financing of Terrorism.

Code of Conduct.

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Benefits derived by the Board from the Risk Committee

More efficient strategic and operational planning.

Greater confidence in achieving planned objectives, both

strategic and operational.

Greater flexibility within the organization wasting less

time and improving the organization’s potential for taking

advantage of opportunities.

Greater confidence in the decision making process.

Greater confidence by the parties involved and an

increase in equity.

Board Member’s protection.

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Sources:

• Principles of Good Corporate Governance and Best Practice Recommendations, Corporate Governance Counsel, ASX, april 2003.

• Australian Stock Exchange Corporate Governance Council.

• Global Risk 2007 from the World Economic Forum – Global Risk Network Report.

•Standard AS/NZ 4360 - 2006.

• Handbook 254 – 2005.

• Colombian Technical Norm 5254 – 2006. Colombian Institute of Technical Norms and Certification, ICONTEC.

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Alfonso Párias Polanco

RISK AND COMPLIANCE MANAGER with DECEVAL S.A.

E-mail: aparias@deceval.com.co

Member of the risk committee of ICONTEC de COLOMBIA. Member of the working group on the evaluation and implementation on the Colombian Technical Norm NTC 5254 based on international norm AS/NZ 4360. Years 2005 - 2007

PRIMA. Member of the PROFESSIONAL RISK MANAGER’S INTERNATIONAL ASSOCIATION. 2005 – 2007.

GARP. Member of the GLOBAL ASSOCIATION OF RISK PROFESSIONALS. 2006 – 2007.

ACAMS. Member of the ASSOCIATION OF CERTIFIED ANTI MONEY LAUNDERING SPECIALISTS. 2004, 2005, 2006 y 2007.

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