If these functions are effectively managed, they can mitigate losses and reduce surprises to the market that can disrupt customer relationships, increase the cost of capital, and tarnish the reputation of the firm. Further, as in any corporate function, focusing on the risks in what is done day-to-day can help identify opportunities to improve operations.
Conclusion Enterprise-wide risk-management and stronger internal governance structures are needed. However, the mutual fund scandal reminds us that monitors, even boards of directors, may have their own governance problems. Full and meaningful disclosure will always be crucial for limiting the ability of companies to pursue their own interest at the expense of investors.