The ERM Current™

Corporate Board Member Magazine recently profiled the seven hot buttons for corporate boards today.  Not suprisingly, risk management was at the top of the list.  However, the article points out that many in the boardroom are having a difficult time not only addressing risk, but also understanding the best way to govern risk throughout the organization.  Here’s an excerpt from the article.

The word risk has a broad range of meaning, and the term is bandied about in corporate America as much as healthcare is in Middle America. Yet, risk shouldn’t be a reduced to a buzzword or a single committee, but rather it should be considered as a managed process that is discussed yearlong. “Directors are asking, ‘What’s my job? How do I get my arms around risk, and what’s management doing to mitigate risk?’” Keith Higgins, partner, Ropes & Gray LLP, tells Corporate Board Member. “Directors have to talk to the CEO and get the CEO to put risk analysis on every agenda. All the math whizzes built great risk models and they were not maybe as predictive as people thought.”

Moreover, risk management should not be viewed in and of itself. Bernard C. Bailey, chairman, LaserCard Corp., a secure ID provider, and director on the boards of EF Johnson Technologies, Telos Corp., and Spectrum Control, doesn’t look at risk management as something you put into a separate box. “It permeates every function within the enterprise—legal, operational, financial, liquidity, marketplace, fraud,” he says, emphasizing that the risk conversation has to be expanded to the whole board.

As the gentlemen quoted in the article point out, effective enterprise risk management is not a simple or easy task.  It is a process that must be woven into the very culture and operation of the entire business – from the boardroom to the mailroom.

The Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) recently released a white paper discussing the role of the Board of Directors in an effective Enterprise Risk Management (“ERM”) program.  It provides an overview of the key drivers for implementing ERM today and what Boards must consider during the implementation.  Here is what they suggest.

In the aftermath of the financial crisis, executives and their boards realize that ad hoc risk management is no longer tolerable and that current processes may be inadequate in today’s rapidly evolving business world. Boards, along with other parties, are under increased focus due to the widely-held perception that organizations encountered risks during the crisis for which they were not adequately prepared. Increasingly, boards and management teams are embracing the concept of enterprise risk management (ERM) to better connect their risk oversight with the creation and protection of stakeholder value.

While ERM is not a panacea for all the turmoil experienced in the markets in recent years, robust engagement by the board in enterprise risk oversight strengthens an organization’s resilience to significant risk exposures. ERM can help provide a path of greater awareness of the risks the organization faces and their inter-related nature, more proactive management of those risks, and more transparent decision making around risk/reward trade-offs, which can contribute toward greater likelihood of the achievement of objectives.

If your company is considering implementation of an ERM program or simply looking to enhance your current ERM program, Wheelhouse Advisors can help.  To learn more, visit www.WheelhouseAdvisors.com.

A recent article in Fortune magazine highlighted the views of two prominent management consultants on what boards should be doing in this time of crisis.  One of the consultants, Thomas J. Neff of Spencer Stuart, had this to say about Enterprise Risk Management.

The other subject that boards need to focus more on is enterprise risk management. It’s not just risk in the sense that banks need to focus on it, but what are the risks in our business model, what are the global risks that could affect our business? It’s a holistic approach to the subject, and stress testing what we’re doing.

Stress testing and scenario analysis results should be discussed at the board level to ensure a company is adequately prepared for the most strategic risks.  Visit www.WheelhouseAdvisors.com to learn more.