Corporate Boards: Managers of Risk, Sources of Risk »

Robert W. Kolb has taught at the University of Florida, Emory University, the University of Miami, the University of Colorado, and Loyola University Chicago, where he currently serves as Professor of Finance and holds the Frank W. Considine Chair of Applied Ethics. Kolb is the author or co‑author of more than 50 research articles and 25 finance texts on topics including financial derivatives, investments, corporate finance, and financial institutions. He recently edited the Encyclopedia of Business, Society, and Ethics (2007). Kolb also founded Kolb Publishing, Inc., which published finance and economics university texts and was acquired by Blackwell Publishing, now part of John Wiley & Sons, Inc.

Donald Schwartz is Professor of Finance at Loyola University Chicago where he directs the Center for Integrated Risk Management and Corporate Governance and the M.S. in Finance program. Donald holds a Ph.D. from Purdue University. Prior to coming to Loyola, Donald was a Senior Executive with Chase Manhattan Banking Corporation and two subsidiaries of Cargill Incorporated. He has worked extensively with corporations and governments to design and execute market and financial risk programs.

Corporate charters empower boards with an important role in managing risk, but recent events have also shown that the members of these boards can also be sources of risk. Corporate Boards: Managers of Risk, Sources of Risk deals with the highly timely topic of the Corporate Board and its relationship to risk, both in terms of its management and its creation. The work presents a multi-disciplinary perspective, including contributions from the areas of economics, management, law, finance, business ethics, and corporate social responsibility. Topics include the role of corporate boards in overseeing increasingly complex risk management techniques, managing corporate boards to control the risk that their activities impose on the firm and on society, and the ethical dimensions of corporate board behavior in managing risk and imposing risk on the firm’s various stakeholders.

Notes on Contributors vii

Preface xv

Introduction Robert W. Kolb Donald Schwartz 1

Part I A Factual Basis 7

1 The Relationship Between Boards of Directors and their Risk Management Organizations: Are Standards of Best Practice Emerging? Michael A.M. Keehner David R. Koenig 9

Part II Is Risk Management by Corporate Boards Even Possible? 53

2 Risk Management, Chaos Theory, and the Corporate Board of Directors Michael Potts 55

3 Anti-Social Norms, Risky Behavior Reza Dibadj 70

4 Time-Inconsistent Boards and the Risk of Repeated Misconduct Manuel A. Utset 90

5 Discussion Sridhar Ramamoorti 112

Part III Board Structure and the Management of Risk 123

6 Theories of Governance and Corporate Moral Vulnerability Greg Young Steven H. Barr 125

7 Mitigating the Exposure of Corporate Boards to Risk and Unethical Conflicts Shann Turnbull 143

8 Supervisory Board and Financial Risk-Taking Behaviors in Chinese Listed Companies Zhenyu Wu Yuanshun Li Shujun Ding Chunxin Jia 175

9 Discussion David R. Koenig 192

Part IV Corporate Boards and the Management of Specific Risks 197

10 Entity-Level Controls and the Monitoring Role of Corporate Boards Donna J. Fletcher Mohammad J. Abdolmohammadi Jay C. Thibodeau 199

11 Do Corporate Boards Care About Sustainability? Should They Care? Steven Swidler Claire E. Crutchley 217

12 Executive Risk Taking and Equity Compensation in the M&A Process William J. Lekse Mengxin Zhao 235

13 Discussion Tom Nohel 267

Part V Corporate Boards, Risk Management, and the Ethical Firm 273

14 The Ethics of Risk Management by a Board of Directors Duane Windsor 275

15 Assurance and Reassurance: The Role of the Board Barry M. Mitnick 294

16Risk Disclosure and Transparency: Toward Corporate Collective and Collaborative Informed Consent Denise Kleinrichert Anita Silvers 316

17 Discussion John R. Boatright 341

Index 355