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

What term describes the system of rules and practices by which a company is directed and controlled?

1. Benchmarking

2. Corporate governance

3. Enterprise risk management

4. Risk assessment

The correct answer is: Corporate governance

The term that describes the system of rules and practices by which a company is directed and controlled is corporate governance. This concept encompasses the processes and structures through which an organization manages its affairs in a way that balances the interests of stakeholders, including shareholders, management, customers, suppliers, and the community. Corporate governance is essential for fostering transparency, accountability, and ethical business practices, ensuring that the company operates effectively and efficiently while minimizing risks. In contrast, benchmarking refers to the process of comparing business processes and performance metrics to industry bests and best practices from other companies. It is more about performance improvement than governance. Enterprise risk management focuses on identifying, assessing, and managing risks that can affect the organization’s objectives as a whole. While it is a critical component of corporate governance, it does not encompass the entirety of the governance framework. Risk assessment is the systematic process of identifying and analyzing potential risks that could negatively impact an organization. This is a crucial part of managing risks but does not define the broader governance structure. Corporate governance serves as the foundation for creating effective and sustainable organizations by establishing a framework for decision-making and accountability.