The Construction of Risk Management Credibility Within Corporate Boardrooms

Abstract

Despite various corporate collapses over the last decades, risk management is increasingly influential across organizations worldwide, as if the apparatus' credibility was impermeable to scandals that, from critical angles, cast doubt on its efficacy. Relying on a cultural perspective of analysis highlighting the range of social processes that protect prevailing institutions' legitimacy from aberrations, we examined the sense-making approaches employed by corporate boardroom actors to maintain their confidence in the credibility of the risk management apparatus despite being exposed to a continuous flow of corporate failures pointing to risk management efficacy limitations. Specifically, we conducted 35 interviews with corporate board stakeholders, mostly board members and corporate consultants. Our analysis indicates that actors involved in risk management processes tend to interpret aberration cases through perspectives that put the blame on some implementation deficiency, thereby ensuring that risk management's core assumptions are not questioned. These perspectives point to a defensive system of thought grounded in the director and consultancy communities, whose main referents are subject to intense work and re-conceptualization in the aftermath of aberrations, thereby providing community members with the means to make sense of the frictions of organizational life in ways that maintain the legitimacy of the risk management apparatus.

Enterprise Risk Management and the Financial Reporting Process: The Experiences of Audit Committee Members, CFOs, and External Auditors

“… We recognize that risk management can take many forms (Gendron, Brivot, and Guénin‐Paracini ) and could be managed through a combination of a quantitative or qualitative approach (Mikes ). In this paper, as noted, we focus on the risk management principles outlined in COSO (, ) since this framework is the most widely used in practice and its principles can be more directly linked to the quality of the financial reporting process, the focus of this study. …”

“… Prior research (Gendron et al. ) suggests that champions of risk management often engage in a discourse of legitimacy to justify these activities irrespective of how effectively they are actually working. Accordingly, we also evaluate participant responses for evidence of institutional theory (DiMaggio and Powell ; Powell ; Suchman and Edelman ).…”

Tax governance: the balance between tax regulatory requirements and societal expectations

“…This illustrates that the route towards obtaining legitimacy among stakeholders appears to be more challenging and unpredictable compared to what it takes to understand and gain legitimacy from tax authorities, who explicitly communicate perceived technical violations in regulatory applications. Some researchers have emphasized that it is important to show how organizational decision-makers experiment with legitimacy boundaries (Gendron et al, 2015). One contribution of this study is that we show how such experimentation may occur within the field of corporate taxation and international transfer pricing, including the challenges that emerge when top management's response strategies depart from a pure legalistic perception of 'right and wrong' without consideration of societal expectations.…”

“…However, the exact nature of the norms and values is often difficult to specify because social pressures may not favor a certain solution but merely articulate disapproval of corporate behavior. The limited clarity and visibility of norms force corporations to navigate with uncertainty (Gunningham et al, 2004) and to experiment with their legitimacy boundaries (Gendron et al, 2015). In addition, the sources of norms and values may range from technical specifications to more subjective opinions.…”

“…Benoit, 1997). Thus, the search for a 'fit' may not link society's values to the identity or 'inner values' of the organization but rather provide a link between outside values and the 'front stage' of an organization (Gendron et al, 2015). Accordingly, efforts to gain legitimacy from stakeholders can focus on 'revealing' inner workings and beliefs.…”