Final answer:
The correct answer is option a. reactive board and senior management oversight.
Step-by-step explanation:
In the study of corporate governance and risk management, a sound risk-management system is crucial for overseeing fiduciary activities in a corporation. Among the basic elements of such a system are: board and senior management oversight, policies, procedures, and limits, risk measurement, monitoring, and management information systems, along with comprehensive internal controls.
The incorrect option listed in the multiple-choice question is 'a. reactive board and senior management oversight,' because effective risk management typically requires proactive, rather than reactive, oversight. Reactive oversight implies a response to issues after they occur, which is not ideal in managing risks. Contrastingly, proactive oversight involves anticipating potential risks and implementing measures to prevent them. The remainder of the options provided are indeed representative of a robust risk management system.
It is critical to recognize the role of the board of directors, auditing firms, and outside investors in providing corporate governance. As seen in the unfortunate example of Lehman Brothers, failure in corporate governance can result in the lack of transparency and inaccurate financial information being disseminated to investors and the market at large.