ERM pros are making a list and checking it, well, lots. This was one of the takeaways from The NeuGroup Corporate ERM Group’s mid-cycle conference call on November 13, 2012. On the call, members exchanged ideas about how their companies discover and mitigate their top risks. Other topics included integrating ERM across the organization, identifying emerging risks and trends using internal and external sources, as well as human capital and leadership-related risks.
The discussion began with one member sharing a list of eight macro trends and/or risks the company has identified as top priorities to monitor and analyze. The list is derived from a series of SWOT (strengths, weaknesses, opportunities and threats) analyses and meetings among business units and risk committees. The outcomes from these activities are synthesized for review by the executive committee and board. Their goal is then to incorporate their combined wisdom, knowledge and experience and narrow the list down to the top six opportunities, threats and risks, ultimately for focused action. Fellow members on the call were then enlisted to see if there were significant items missing from the list.
Members were also asked to comment on to what degree they use external trends to determine what to focus on long term. Many corporate ERM programs look both internally and externally to identify emerging risks and relevant trends. For one member, internal risks are determined by interviewing business leaders who best understand the emerging risks within their business; external risks are determined from multiple sources, such as risk reports from the corporate executive boards, news reports, and even from consultants retained for review. One of the exercises that some members find help is by working with the strategy groups earlier in the year to identify mega trends that could change and shift their place in the market, as well as impact their competitors.
An ongoing challenge. Integrating ERM with the broader business and planning units has been one of the ongoing challenges for many corporate risk officers. One member shared his company’s recent success in this area. This member said he first started by requesting that each business unit form a risk committee in order to directly impose risk ownership at the BU level. However, the BUs rejected this proposal, but not before proposing an idea of their own. The BUs felt incorporating an ERM structure into a quarterly business meeting that already occurred was a better idea. Despite the member’s initial skepticism, the latter turned out to be a better decision as now the process has been embraced by the business units outright and they have the ownership of the process as well as the risks. Other members also echoed the importance of aligning ERM process with planning and other support functions within their own corporate hierarchy.
The human element. Human capital and leadership-related risks also were topics raised by group members. Hiring and retaining strong talent, particularly in large growth markets such as Indian and China, has been a topic for peer group meetings across the NeuGroup spectrum. In the conference call, one member took the notion even further to the challenge of finding effective and talented individuals with the leadership skills needed for meeting the company’s long-term objectives.
Other ways ERM leadership matters is in dealing with careless management. One member called out a concern within his organization regarding complacent middle managers, who may become a significant risk by simply checking boxes to cover the risk-management base. Another member described an initiative where they began facilitating roundtable meetings on emerging trends. However, they realized that other groups in the company were doing the same thing. They are now working to coordinate these efforts and ultimately want to assign ownership for these risks.