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ERM: opportunities for improvement: take your risk management system to the next level.

Article Excerpt
EXECUTIVE SUMMARY

* Expectations for improvements in how boards and senior executives oversee enterprisewide risks are on the rise. The authors surveyed more than 700 organizations in September 2008 to better understand the current state of enterprise risk oversight. This article provides a brief overview of key findings from that research and identifies potential opportunities to strengthen risk oversight.

* Organizations have traditionally tackled risk oversight by managing individual "risk buckets" or silos. The survey found that 44% of the respondents have no enterprisewide risk management process in place and they have no plans to implement one. An additional 18% of respondents without ERM processes in place indicated that they are currently investigating the concept, but they have made no decisions to implement an ERM approach to risk oversight at this time.

* The two most common perceived barriers to ERM implementation were the existence of competing priorities within the organization and insufficient resources to devote to an ERM implementation. Despite the barriers, 75% of the organizations indicated the board of directors is asking senior executives to increase their involvement in risk oversight at least moderately.

* A majority of organizations who delegated risk oversight to a committee of the full board assigned that responsibility to the audit committee (55%). Other committees that were reported with some frequency were the executive committee of the board (21% of responses) or a separately established risk committee (18%).

* Steps for improvement include: information gathering to identify the top five-to-10 risk exposures the organization is likely to face in the next three to five years; reconciling the top risk exposures with existing risk management activities already ongoing within the organization; and prioritizing any newly identified unmanaged risks.

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As the result of fallout from the ongoing economic crisis, failures associated with existing risk management processes are already generating calls for reform and increased regulatory scrutiny

SEC Chairman Mary Schapiro said in an April 2009 speech to the Council of Institutional Investors that "the Commission will be considering whether greater disclosure is needed about how a company--and the company's board in particular--manages risks, both generally and in the context of setting compensation." In July 2009, the SEC issued its first response through proposed rules that expand proxy disclosure information about the overall impact of compensation policies on the registrant's risk taking and the role of the board in the company's risk management practices. Proposals in Congress call for the establishment of board risk committees composed of independent directors, among other reforms.

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Credit rating agencies such as Standard & Poor's have also focused on an organization's risk management processes, providing an additional incentive for organizations to consider further enhancement of existing risk oversight infrastructure. Without a doubt, expectations for improvements in how boards and senior executives oversee enterprisewide risks are significantly on the rise. The question is whether organizations are currently in a position to respond with more...

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