Risk Evaluation Report

Corporate social responsibility and risk evaluation report

ASSIGNMENT INSTRUCTIONS

Format: 3000-word written report

Note: All written assessments should be submitted as Word files (.docx) (Word is available from your AIB Office 365 account)

Completing Learning Activities in Modules 4, 5 and 6 will help you develop your responses to the second assessment.

This assessment has two parts: based on a company of your choice, you will first discuss key areas of corporate social responsibility (CSR); then, you will evaluate corporate risk in relation to your selected company.

Tasks

Select a company (it can be the same company you used in the first assessment) and suppose you are one of its independent non-executive directors. Address the following assessment questions based on the disclosed governance information and relevant governance concepts and theories.

Part A. Corporate Social Responsibility (40%):

  1. Discuss the long-term goal of the selected company and the extent to which it should be accountable for stakeholders’ interests.
  2. What is the role of the board of directors in facilitating CSR? Critically discuss how CSR activities will affect your company’s short-term and long-term performance.

Part B. Corporate Risk Management (60%):

  1. Review and discuss your selected company’s current risk framework, including a discussion of the board committee responsible for risk management.
  2. Identify at least eight risks for your chosen company using any method we learned in Module 4. Include two risks resulting from a malfunctioning board. Assess and evaluate the recognised risks by their impact and probability (allocating a level from 1 to 5) and use the tool provided in Activity 4.2: Risk recognition, evaluation and mapping to map the risks into a risk matrix. Finally, discuss appropriate risk mitigation policies for the selected risks.

Based on your findings in Part A and Part B above, summarise the key implications and recommendations.

Requirements

  1. Define critical terminology at the beginning of each section.
  2. In each section, discuss relevant corporate governance principles & theories.
  3. The required word length for this report is 3,000 words (plus 10% tolerance). 
  4. You are required to use at least six (6) academic references for this report (in addition to the reference for the disclosed corporate governance information such as annual reports). 
  5. Your references should be from credible sources such as books, industry-related journals, magazines, or academic journal articles. Your grade will be adversely affected if your assignment contains no/poor citations and/or reference list and if your assignment word length is beyond the allowed tolerance level (see Assessment Policy available on AIB website). 

Useful resources

  • Prescribed textbook and learning materials and readings from Modules 4–7.
  • Disclosed governance information source: annual reports (Australian companies), proxy statement (US companies), management proxy circular (Canadian companies), company website or any other company statements.

Format

  • The report format should follow AIB Style Guide (i.e., cover page including your name and a student id, title and word count of the report, executive summary, table of contents, body, list of references, and appendix if needed).   
  • Please use the AIB Report Template to format your report, or use the AIB-preferred Microsoft Word settings (see page 34 of the AIB Style Guide). 
  • Use author-date style referencing (which includes in-text citations and a reference list)  

Grading criteria and feedback

Your assessment will be marked according to the following grading criteria:

  • Criterion 1 Theories Understanding of relevant corporate governance concepts, principles and theory –20%
  • Criterion 2 CSR evaluation Critically evaluate the selected board in terms of stakeholders’ interests, corporate social responsibility, and their potential impacts on the short-term and long-term financial performance of the company. – 28%
  • Criterion 3 Risk assessment Critically evaluate the risk framework of the selected board; evaluate at least eight risks (including two risks resulting from malfunctioning board) and discuss appropriate mitigation policies at board-level. – 42%
  • Criterion 4 Referencing In-text citations and referencing – 5%
  • Criterion 5 Communication Communication, presentation, structure and language – 5%

ASSIGNMENT SOLUTION

Corporate social responsibility and risk evaluation report

Executive Summary

              This report analyzes corporate social responsibility (CSR) and risk evaluation at the Australian Institute of Business MBA. The report has presented various long-term goals of the company, including risk management and promotion of corporate social responsibility and how it can be accountable to shareholders’ interests. Essential roles of the board of directors in facilitating CSR have been widely presented, and how corporate social responsibility operations will affect both the short-term and long-term performance of the AIB as a company. Additionally, the report further describes AIB’s current risk framework and board members responsible for risk management through practical discussion of the potential risks exposed to the company.  Moreover, possible risk mitigation policies for the selected risks have also been discussed in length within the report. Finally, this report concludes with a summary of the key points discussed and a recommendation section for further studies or adopted by AIB as an organization to improve its performance.

 1.0 Introduction

           The Australian Institute of Business (AIB) is among Australia’s largest online MBA providers. The organization has operated in tertiary education, global network, and alumni in many countries for over thirty years. The programs offered by AIB are recognized internationally and accredited in Australia. The industry is focused on the online delivery of MBA with flexible and practical learning designed in the contemporary world. The organization also aims to contribute positively to its community, termed social corporate social responsibility (CSR). According to Fernando (2021, char 1), corporate social responsibility is a regulating business model that a company may adopt to be socially accountable to either stakeholder, the public, or the company itself or policies or practices that a corporation undertakes intending to have a positive influence under the globe. The essential purpose of CSR is giving back to society, being part of philanthropic causes, and provision of positive social value. AIB, a company, has adopted different activities to support the goal of CSR under three pillars: AIB and the community, Environment, and industry employees. However, this report will analyze corporate social responsibility and risk evaluation to provide a critical understanding of the company’s performance by investigating the risks the organization is exposed to.

2.0 Corporate Social Responsibility

2.1 Long-term goals of AIB

Most companies implement long-term goals as a strategy for competitive reasons. Long-term goals are the things a company aims to accomplish in the future. They usually involve a broad time frame of more than a year and planning to succeed. AIB has various long-term goals it aims at achieving, as presented in the following discussion.

2.1.0 Internationalization

The company aims to promote its services globally through the adequate provision of online MBA studies. This will be achieved by promoting openness within borders, cultures, and ideas (Jibeen and Khan, 2015, 198). On the other hand, to effectively manage global knowledge awareness across borders, regions, and cross-cultural issues, AIB aims to actively focus on international collaborations, global understanding, and open-mindedness to achieve internationalization goals.

2.1.1 Increase AIB market share

            The company aims to conquer most parts of the online market in the delivery of MBA. This can be achieved through a strong customer relationship to ensure students receive quality degrees in MBA through effective lesson delivery and acquiring proper knowledge in the field. To increase the market, the company needs to be more competitive in marketing by offering its services differently to gain competitive advantages. This will help AIB to capture a significant market for the company services to attract more customers. To gain a significant market share, the company needs to plan and implement long-term plans to act as drivers toward attaining its goals.

2.1.2 Brand Recognition

            Brand recognition is an ongoing process that AIB aims to achieve through brand awareness. The company will gain more customers when a brand is familiar with the market. Quick and easy recognition of a brand within the community undertakes a longer route in retaining current customers and obtaining new ones. Therefore, the organization aims to make its brand familiar to customers through consistent social media advertisements and participation in community events and activities. This will help AIB to be more recognizable in many years to come.

2.1.3 To attain sustainability

            AIB aims to operate in an environment with carbon neutrality across all company activities. This will help in the transition process of customers to a low-carbon economy. A sustainable corporation means how a company considers operating in a social, ecological, and economic environment (Haasnaes, 2016). To attain sustainability, the company aims to improve its activities to an eco-friendly operation that cannot be achieved overnight.

2.2 AIB accountability to stakeholder’s interest

            Accountability is essential in every organization since it presents individuals liable for different activities within the company. Stakeholders accountability shows the relationship between the company and its stakeholders and the actual interpretation of how accountable the relationship should be by all parties (Abd Aziz et al., 2015, 163). Being accountable to stakeholders’ interests indicates how the company is responsible enough for issues affecting stakeholders and their needs. There are several ways in which AIB is accountable to its stakeholder’s interest; they include,

  • AIB is accountable for shareholders’ interest in the performance value of the organization. This is conducted through effective operations and observing ethical values (Al-Thuneibit, Al-Rehaily, and Basodan, 2015, 23).
  • The company is accountable for all the goals and objectives set by the stakeholders since it acts on behalf of the stakeholders, and all their targets must be achieved during the organization’s operation.
  • On the other hand, AIB can be accountable for stakeholders’ interests by achieving high profitability. When the company produces more revenues, profitability will increase, leading to more profits (Al Nimer, Warrad, and Al Omari, 2015, 230). This will enable shareholders to receive more interest on their shares which the company is liable for.

Some theories tend to expound on stakeholders’ interests within the company through corporate governance. The following are some of the theories.

2.2.1 Stakeholder theory

            This theory assumes that organizations owe some responsibility to a broad group of stakeholders and not stakeholders. The firm owes a responsibility to the broad community, and the company’s purpose is to act as a driver for the coordination of stakeholders (Jones et al., 2017, 17). The essential aim of stakeholder theory is for the greater good, though its practice has been criticized, for example, how agency relationship has been ignored (Miles, 2017, 437). The criticism continues to expound on how managers can use the theory to take actions in their interest since they can easily claim that it will benefit some stakeholders.

2.2.2 Agency Theory

            Agency theory is a tool to explain and resolve business issues in the relationship between the principal and the agent. The relationship is between the shareholders as the principal and agents being the company executives. Agency theory can be understood from the perspective that the principal contracts the agent to act on their behalf (Panda and Leeps, 2017, 75). This theory assumes that the agent’s interest and the principal are not always aligned and may be termed the principal-agent problem (Carol, 2020, char 1). Since the principal is contracting the agent, they are entrusted by the company resources such as money even though they don’t have input in the firm’s daily operations. The agent act as the decision-maker though exposed to little or no risk since the principal borne losses of the organization.

            Additionally, agency theory remits disputes that may arise in two essential areas. They include, first, a difference in risk aversion where a company executive may decide to expand the enterprise into new markets by sacrificing the organization’s short-term profitability (Boses and Phillips, 2016, 284). The main aim is for future growth of the company and increased earnings. The principal may prioritize short-term capital growth, opposing the company’s decision, leading to disputes between the agent and the principal. The second dispute is incompatible levels of risk tolerance. This is majorly between an agent and the principal, where shareholders may object to the management’s bar being too low on loan approvals taking a high risk of defaults.

  2.3 Role of the board of directors in facilitating CSR

            To facilitate CSR, the board of directors has been assigned to create and manage CSR programs. This is achieved by creating policies and forecasting higher corporate-level performance by implementing employee training and accountability measures (Harvey, 2021). Therefore, the board of directors must be equipped with a clear understanding of corporate operations’ human rights and social effects. Analysis should be conducted on the company’s overall performance, especially how it holds its operations, working conditions, and societal relationships.

2.4 Effects of CSR activities on AIB’s short-term and long-term performance.

            Corporate social responsibility is not merely tied to the obligations of an organization but should be based on the responsibility in the interest of various parties, including the firm itself. Implementation of CSR activities may have varied effects on the company’s short-term and long-term performance in different ways (McWilliams, 2015, 1). First, CSR activities will lead to the reduction of corporate expenses of the company. Consistent implementations of CSR activities will enable AIB to perform more efficiently than before, enabling the firm to reduce the cost of operation and gain competitive advantages (Ali, Frynas, and Mahmood, 2017, 285). Second, the company will become more socially responsible since AIB will now aim at saving the earth. The organization will adopt new ways of operation in an ecological, social, and economical manner to enhance pollution and greenhouse effect reduction—finally, brand recognition through engagement in CSR activities. Being socially responsible, the firm will gain more fame since consumers and suppliers favor such enterprises, which will help the company to be more competitive in the market.

3.0 Corporate Risk Management

3.1 AIB Current Risk Framework

            The risk management framework illustrates essential guidelines that can be exploited to manage organizational risks. A risk framework describes the procedure used to recognize potential threats in a company and provides strategies for minimizing or eliminating the impact of the risk and the techniques to monitor and evaluate the strategy (Torabi, Giahi, and Sehabjamnia, 2016, 201). Risk-taking is critical in every firm where AIB assumes various risks to provide effective tertiary education to all its students. A risk is an event that can threaten the firm reputation, breach legal obligations, lead to the decline of the firm, and damage the company’s earning capacity. The organization has adopted a risk management approach to address risk issues to help identify, assess and manage risk. Below are the crucial elements of the current risk framework of AIB.

  • Risk Philosophy: The senior management and the board have set a higher tone on top. This enhances the firm’s philosophy, culture, and behavior toward risk and governance. It provides the foundation for engaging in risk governance procedures within the company at functional and divisional levels. The organization has reiterated risk-taking principles that show AIB’s risk culture, philosophy, and coherent standards over risk-taking decisions (Fazel, 2020). The fundamental principles include the following: First, a particular business unit should own all risks and associated returns. Second, independent performance of risk governance functions to identify essential risks and be managed appropriately by a specific business unit.
  • Risk Appetite: This framework seeks appropriate risk-taking measures for effective alignment with business objectives and strategies. AIB identifies its risk appetite in a bottom-up and top-down fashion. Top-down risk appetite is determined through a wide range of approved tolerance and limits across different risk types (Kaplan and Mike, 2016, 10). It can also be identified in terms of the planning process since it shows the type of risk and how much it requires to deliver the company strategy and objectives. On the other, bottom-up risk appetite is captured with relevance to the emergence of the risk profile from different risk assessment procedures exercised by the organization for each type of risk (Alix et al., 2015, 8). Therefore, the company aims to enhance the concept by establishing tolerance and risk appetite to strengthen the link between business planning and risk appetite.
  • Risk management and governance: The company utilizes a three-line defense framework to enhance accountability for risk governance. Under this model, the risk management responsibility is bestowed upon the line management supported by divisional functions and three groups with a role in risk governance (Ellul, 2015, 283). The three-line model includes regulatory compliance, enterprise-wide risk, and educational functions. Additionally, the board’s responsibility in risk-taking operations is essential because they tend to delegate risk governance roles to various committee officers.
  • Risk Identification and assessment procedures: This process is conducted with the help of both bottom-up and top-down risk assessment guidelines. The top-down procedures are based on various risk types and essential risk drivers rather than individual risk activities. The process is adopted as a forward view of recognized threats planned over the horizon (Vauhkonen, 2012, 40). This assessment is usually undertaken monthly for six months, also regarded as an enterprise risk assessment. Bottom-up assessment procedures are based on risk occurrences that can easily be identified through quantitative and qualitative techniques. The essential qualitative tool is self-assessment to assess regulatory compliance and operational risks (Sorense et al., 2019, 507). On the other hand, quantitative methods involve utilizing internal tools to estimate the probability of the risk value, loss default, and default concerning the company portfolio.
  • Risk strategy: The company risk strategy is illustrated by the firm profile and risk appetite that emerge from risk assessment procedures. In case of a mismatch between risk appetite and actual risk, intense action is taken to address such gaps. Risk strategy in the current company environment focuses on risk profile reduction, offering effective learning within the institute through support and attaining company sustainability.
  • Undertaking stress and scenario tests: AIB uses stress and testing scenarios to analyze and supplement risk assessment procedures to attain regulatory requirements. The main objective of this framework is to assess the organization’s extreme exposure but address the events (Taskinsoy, 2018, 286). This can be conducted through approval of stress scenarios, oversight of the analysis and decision, and results from the review, enabling the firm to achieve stability in risk management.

3.2 Board committee responsible for risk management   

            Due to the delegation of duties in the contemporary world, the board committee does not entirely rely on the management in risk management. Risk management has been bestowed upon the board of directors to enhance collective responsibility within the organization (Ittner and Keusch, 2015). Emerging economic trends allow board members to be forward thinkers and forecast potential risks that may affect the organization. The Board of Directors is responsible for risk management through risk oversight which can be achieved through policy development and processes around risk (Fraser, 2016, 283). Effective follow-ups on risk management implementations of risk management procedures and policies, fostering risk awareness, and encouraging organizational cultures. Risk adjustment awareness is also vital for board members.

3.2 Risk Analysis

3.2.1 Identification of risks within AIB

            Risks are termed events that may disrupt the smooth operation of a company. The following risks have been identified in AIB.

  • A security breach is associated with cyber-attacks since the company mainly operates online. These attacks may include website attacks or hackers who access students’ personal information that should be treated with high confidentiality.
  • Intellectual property violations concerning IP protection, including the company content, icons, images, and logo, may result in massive harm to the company.
  • Poor governance mainly results from the failure of the board to perform its duties effectively. This can lead to poor service delivery and the firm’s overall performance.
  • Weak authentication techniques may render the company vulnerable to cyber attacks since the company mainly operates online.
  • Inadequate forecasting among the board. This can expose the company to more risks due to failure to compute and implement corporate strategies to help the company address future issues that may affect the firm.
  • Over-reliance on a working-class group of students may be uneconomical if they all decide to attend physical classes, and the company’s performance and operation may be significantly affected.
  • Stability of the system wherein case of system failure, the students may not be able to access and attend their online classes.
  • Fraud cases where students may claim to have paid their fees, yet they tend to defraud the company. This can significantly affect the firm’s profitability both in the short-term and long run.

3.2.2 Risk assessment and evaluation

            The risk assessment criteria range on a scale of one to five, where 1=very low, 2 low, 3= moderate, 4 high, and 5=Very high. The following assessment and evaluation can be made from the identified risks above depending on the risk impact and probability. First, Security breaches and intellectual property violations have very high risks since they can affect the firm’s general performance since can contribute towards the stoppage of the company’s operation. Second, poor governance and inadequate forecasting from the board can be categorized under high risk since it can affect the firm’s future if not quickly addressed. Third, Weak authentication and stability of the system are ranked very high since they hinder the company’s daily operation to a greater extent. Finally, over-reliance on the working class and fraud has been categorized as moderate since the company can still operate with the risks in place without immediate, intense effects.

3.2.3 Risk Matrix

  Security breach and intellectual property  Weak authentication and system stability Poor governance and inadequate forecasting Over-reliance on working-class and fraud cases
Very high 5 5    
High     4  
Moderate       3
Low        
Very-low        

                                                                                    IMPACT

3.2.4 Risk mitigation policies

            Risk identification is essential though not sufficient. Taking the initiative to deal with risk is essential to address risks through proactive acknowledgment and accommodation of risk (Vij, 2019, 5). The following policies can be used to mitigate the identified risks.

  • Avoidance: The company may ignore the negative consequence of a particular firm’s activity.
  • Control or reduction: The company can prioritize using hazard analysis tools to help reduce the probability of severe occurrence of risks.
  • Building a solid system will help reduce security issues and improve the system’s stability.

4.0 Summary and Recommendation

            The analysis presented in the report has presented an in-depth understanding of how AIB is socially responsible in its operations through evaluation of the company’s CSR. Additionally, the report has described different risks associated with the company and how they have been assessed and evaluated on a scale of one to five. The mitigation strategies can be explored to avoid future occurrences of the risks. I would recommend that AIB refine its risk management framework to address potential risks effectively. The board of directors should be educated on their roles for the adequate performance of the company.

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