Perilous Times Require Strong ERM Programs

Each day as we read the news across the globe, it is apparent that the business environment continues to be laden with a myriad of risks. Without advance preparation, companies looking to advance their strategies will find themselves at the mercy of some unforeseen event that will threaten their success or perhaps their very survival. In times like these, it is critical to have a strong enterprise risk management (“ERM”) program that is woven into the fabric of a company’s strategy as well as its day-to-day business operations.

However, implementing an effective ERM program today is no easy task. Faced with an uncertain regulatory and economic outlook, many companies struggle to create a cost-effective, focused program that will provide the necessary insight to anticipate the most critical risks.  While each company and industry may be unique, there are a few common steps that can be taken that will lead to a more effective ERM program.

1. Start with the strategic plan – focus ERM efforts on where the company is going, not where it has already been

2. Create a simple framework and process that is easily understood – too many companies try to make ERM more complicated than it needs to be

3. Demonstrate importance of the program with a C-level champion – whether it is a new Chief Risk Officer, the CFO or even the CEO, a key leader must lead the charge

4. Tie risk management objectives and metrics to existing performance metrics – business goals require incentives and risk management objectives are no different

5. Invest in cost-effective enabling technologies – a wide range of risk management technology solutions exist today and choosing the wrong solution can result in cost overruns and poor results

By taking these steps, you will certainly be headed in the right direction on your ERM journey. However, the ultimate success factor is maintaining a long-term commitment to ERM as a valued business discipline. To learn more about creating a successful ERM program, visit www.WheelhouseAdvisors.com.

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How Mature is Your Risk & Control Program?

During the past decade, many significant events occurred that placed greater demands on how companies manage their risks.  At the beginning of the decade, we experienced the financial downturn associated with the bursting of the high tech/internet bubble.  Then, we had the after effects of the September 11th terrorist attacks.  Corporate accounting scandals at Enron and WorldCom created new financial reporting challenges in the form of the Sarbanes-Oxley Act of 2002.  Now, we are finally beginning to emerge from one of the greatest financial meltdowns in American history.  All the while, companies have been trying to keep pace with ever increasing levels of risk and regulation.

Much of the fallout from the financial crisis of 2008 can be attributed to the lack of coordination and integration of risk management practices at individual firms as well as across entire industries.  To be successful at managing risk going forward, companies must begin to examine how they are currently focusing their efforts and how they need to evolve their overall risk and control program.

The evolution path for most risk and control programs can be broken into four distinct stages – Developing, Implementing, Improving and Integrating (see figure below).   As companies begin to take a more focused approach to managing risk, they usually begin by simply reacting to regulatory demands or recent negative events that have occurred.   In this initial “Developing” stage, companies may create ad hoc task forces or assign individual teams to address the risks.

However, most companies begin to see the need for a more formal, enterprise-wide approach and enter the “Implementing” stage.  Here, a risk champion is typically named, standards are created and the various teams begin to align and share information.  Once the sharing of information begins, both horizontally and vertically through the company, inefficiencies and gaps become apparent.

Companies then move to the “Improving” stage in order to streamline processes and adopt best practices.  Finally, once the program has matured into an efficient mechanism on its own, it should be fully integrated into the business itself – at all levels.  It is this “Integrating” stage of evolution that is the holy grail of Enterprise Risk Management.

Where is your company on the evolution path?  What obstacles are you facing as you look to progress from one stage to another? Wheelhouse Advisors can provide both unique insight and practical solutions to help you reach the desired level of maturity.  To learn more, visit www.WheelhouseAdvisors.com.

Responsible Investing on the Rise

According to recent studies by the CFA Institute, many people are looking to expand their concern for sustaining the environment to their investment portfolios.  In a publication released earlier this year, the CFA Institute noted the following.

A growing number of people are extending their social consciousness beyond driving hybrid vehicles or drinking fair trade coffee to pursuing a socially responsible investment strategy that reflects their values and core beliefs…. Socially responsible investing (SRI) integrates financial objectives with social and environmental objectives. SRI assets are growing at a faster pace than the broader universe of all investment assets under professional management.

In addition, those same investors are clamoring for stronger corporate governance and risk management within the companies that they are considering for investment.  Yesterday, the Financial Times quoted a proponent of responsible investing.

“Responsible investors benefit from better risk management, greater transparency, and an active engagement with companies to promote better management,” says Helena Vines Fiestas, a policy analyst for Oxfam. “Social, environmental and governance issues are also key features of their investment analysis. In this climate, responsible investors offer a real way forward.”

What’s good for the environment can also be good for companies looking to navigate the ever changing world in which we live.