What is the role of fiduciary duties in corporate governance with respect to risk management?

• A. Directors set all day-to-day operations.
• B. Directors have no obligation to risk management.
• C. Directors only focus on external communications.
• D. Directors must oversee risk management, ensure compliance, and avoid conflicts that could misallocate resources.

Answer: (D)

Fiduciary duties require directors to actively oversee how the company identifies, assesses, and manages risk. They set the risk governance framework, approve the risk appetite, and ensure effective internal controls and compliance programs while monitoring risk exposures. They must also avoid conflicts of interest that could skew decisions or misallocate resources, protecting shareholder value. While management runs day-to-day operations, the board’s role is governance and risk oversight. Neglecting risk management or focusing only on external communications would miss essential duties. So the best description is that directors must oversee risk management, ensure compliance, and avoid conflicts that could misallocate resources.