A company should ideally have separate audit and risk management committees and the risk management committee should be duly represented on the company board, feels Derek Condon, academic director, Warwick Business School, The University of Warwick.

Condon was here in connection with a discourse on “Risk Management and Corporate Governance” organised by the Ruia Group, which owns Dunlop India and Jessop & Company.

Speaking to Financial Chronicle on Monday, Condon said, “The company board should play a strong role in adopting a realistic risk management system and the risk management system should be carefully separated from its audit committee.”

Asked if auditors should be rotated to ensure fairness and marginalise the risk of an unholy nexus, the Warwick University professor said, “Rotational audit is fine. Many companies do that. However, I would not recommend over-rotation. Because over-rotation may take away knowledge and experience from the company and may put an established system into jeopardy.”

With reference to the Satyam fraud, he said that a financial fraud was nothing new or peculiar to India. “What is more important is how one handles such a crisis. The best way to pre-empt such a fraud is to admit everything transparently. And that’s what corporate governance is all about. Shareholders should not be kept in the dark. Communication is the other keyword. Everything should be communicated to all stakeholders and that in turn increases shareholders’ value,” he said.

The nature and magnitude of the risk varies from company to company and there is no generic set of list of risk. “Like for energy and utility sector in particular, political risk analysis and political risk management before taking a final call on investment or cross border acquisition are very important,” he said.

Talking about independent directors, Condon said that they should have liability insurance. In many parts of the world this is a common practice. In this connection he said that a former auditor should not ideally and ethically join his client company’s board as independent director after his retirement.