Risk and Insurance Management Society (RIMS) Certified Risk Management Professional (CRMP) Practice Exam

What is the primary focus of corporate governance?

1. Cost reduction

2. Profit maximization

3. Organizational control

4. Risk management

The correct answer is: Organizational control

The primary focus of corporate governance is organizational control, which encompasses the mechanisms and processes by which corporations are directed and controlled. Effective corporate governance ensures that the interests of stakeholders, including shareholders, management, customers, and the broader community, are taken into account. It establishes a framework for achieving a company's objectives while balancing the interests of various parties involved. Organizational control includes setting clear roles and responsibilities, ensuring accountability at various levels of the company, and implementing policies and practices that promote ethical behavior and compliance with laws and regulations. By focusing on effective organizational control, a company can create an environment that fosters transparency, integrity, and long-term sustainability, ultimately leading to better decision-making and performance. While cost reduction, profit maximization, and risk management are important aspects of running a business, they fall under the broader umbrella of organizational control and governance. Good corporate governance influences how these elements are managed, guiding the company toward meeting its strategic goals while also addressing the needs and concerns of all stakeholders.