4. The Development of Risk Management

Literally: “la formula che mondi possa aprirti.” Quote retrieved from E. Montale (1925) in the poem “Ossi di seppia” in which Montale invites the interlocutor to meditate on the crisis of certainties of the contemporary man, who often falls into the deception of being able to find a resolute formula, a certain solution.

Fraser and Simkins (2010), citing Bernstein (1996), identify those men who started this process of manipulation in the following figures of the Renaissance and Enlightenment: Leonardo Pisano, who introduced Arabic numerals; Fra Luca Bartolomeo de Pacioli, who developed the double-entry bookkeeping system; Girolamo Cardano, famous for measuring the probability of dice; Blaise Pascal, who introduced the concept that the fear of damage must be proportional not only to its gravity but also to its probability; John Graunt, who calculated statistical tables; Daniel Bernoulli, well known for the concept of utility; Jacob Bernoulli, famous for the law of large numbers; Abraham de Moivre, well known for the bell curve and the standard deviation; Thomas Bayes, famous for his studies on the statistical inference; Francis Galthon, who introduced the concept of statistical correlation; Jeremy Bentham, well known for the law of supply and demand.

In the organicist perspective, the human being is the marker around which the theoretical orientation is built. Ponzanelli (1977, p. 65), examining the dynamic characteristics of a company, argues that it: “similarly to natural organisms (human beings, animals, plants), has organs destined to single functions that, harmonically coordinated, ensure the survival and the functioning of the same.” Consistently, Ceccherelli (1923, pp. 67–68) defines the company as: “the natural elementary organism of the society, deriving from the organization of personal powers and external means, which, realizing a given purpose with respect to its subject, at the same time accomplishes production and consumption functions towards the society.”

Boulding (1950) introduced a life cycle theory of firms, arguing that there is an “inexorable and irreversible movement towards the equilibrium of death. Individual, family, firm, nation, and civilization all follow the same grim law, and the history of any organism is strikingly reminiscent of the rise and fall of populations on the road to extinction.”

Actually, the risk phenomenon has also been analyzed in various disciplinary sectors, such as the general economy, mathematical and statistical sciences, corporate finance, and the economy of financial intermediaries.

Bertini (1969, p. 12) defines risk as the possibility that if the hypotheses formulated do not occur, unfavorable consequences are produced for the subject that defined them. Therefore, in a broad sense, there is risk whenever it is possible to formulate a perspective of economic damage.

In this regard, see Giannessi (1960), Dezzani (1971), and Bianchi Martini (1996).

Without going back to Aristotle or the Pythagoreans, here we refer to Giannessi (1979, pp. 15–21), who identifies three types of essential requirements to ensure the continued existence of the company:

Padroni (2007), in order to explain the difference between the old and linear versus the new and complex world, refers to the metaphor of the clock. The author regards the linear system like a clock that one can disassemble and reassemble, and although it can appear a difficult task, it is something one can learn with experience, as it follows specific rules. On the contrary, the complexity can be perceived as a human body: One cannot disassemble and reassemble it, because there are so many interconnections that even an experienced doctor could never be able to recreate a human body.

Risk management occurs differently in different companies depending on the legal form, size, and sector of operation. Management, therefore, has the responsibility to manage the risks that threaten the achievement of the corporate objectives. In facing this responsibility, top management can adopt different approaches that are distributed along a temporal continuum ranging from merely reactive behavior to proactive behavior in the management of risk. At the end of the 1990s and during the first years of the second millennium, the globalization of the markets and the emergence of cases of business crisis favored the development, based on a proactive and holistic approach.

In this regard, a key role has been played by the Sarbanes Oxley Act (SOX) in 2002 and, in Italy, by the Legislative Decree 231/2001, the Law 262/2005, the Legislative Decree 22/97, and the Legislative Decree 14/2019.

In COSO (2004, p. V), it is specified that “this Enterprise Risk Management—Integrated Framework expands on internal control, providing a more robust and extensive focus on the broader subject of enterprise risk management. While it is not intended to and does not replace the internal control framework but rather incorporates the internal control framework within it, companies may decide to look to this enterprise risk management framework both to satisfy their internal control needs and to move toward a fuller risk management process.”