Enterprise Risk Management: Current Initiatives and Issues Journal of Applied Finance Roundtable

Article excerpt

Financial Management Association International

October, 2007 Annual Meeting held in Orlando, Florida

Panelists: Bruce Branson, Pat Concessi, John R.S. Fraser, Michael Hofmann, Robert (Bob) KoIb, Todd Perkins, and Joe Rizzi

Moderator: Betty Simkins

I. Introduction

Betty Simkins: Good afternoon. I'm Betty Simkins, co-editor of the Journal of Applied Finance and moderator of this roundtable. In this session, we will talk about the current initiatives and issues in Enterprise Risk Management (ERM). I view ERM as a natural evolution of risk management that looks at all risks across the organization, not just narrow "silos" of risk as viewed in the past. ERM is an important discipline that is gaining popularity and recognition with many companies and also in the educational process with universities.

Let's first begin with a definition of ERM to set the stage for our roundtable discussion. A good place to start is with the Committee of Sponsoring Organizations of the Treadway Commission (COSO) definition, which defines ERM as: "a process, effected by an entity's board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives."1

Surveys show the number of U.S. firms saying they have fully implemented enterprise risk management (ERM) tripled to 12% in 2007 from 4% in 2006.2 Some companies have had little or no success while others have had extensive success with ERM. Several universities through education, research, and executive programs are active in the enterprise risk management initiative.

In our roundtable discussion, we will start off with a general introduction to enterprise risk management including how and why it is important to companies and education; the benefits, value, and education initiatives; and key organization structures, designs, processes, and best practices. To summarize, we will discuss the following six questions in this session:

Question 1: How do you define ERM?

Question 2: Where is your company or university in the ERM process?

Question 3: Let's talk about the taxonomy of risk, particularly operational risk. It seems that too many diverse risks get classified into this category (i.e., human frailties to unethical board members and corporate officers, etc). How does your firm or university deal with these issues?

Question 4: What can universities do better in educating students on ERM? What would firms like to see their new employees know about ERM? What specific skills are most desirable?

Question 5: (For the corporate panelists) Do you think ERM contributes to shareholder value at your firm? If so, how?

Question 6: Are there organizational structures, designs, processes or best practices that you believe are key for effective ERM implementation?

Question 7: How do you make ERM actionable and keep your ERM program dynamic?

Question 8: Do you have research ideas for academics? What is your forecast of how ERM will evolve over the next 10 years?

To address these questions, we've assembled a very distinguished panel consisting of five ERM executives and two ERM faculty experts. Let's introduce each of them now, beginning with the ERM executives.

Pat Concessi is a Partner in Deloitte & Touche's Global Energy Markets practice. She has been responsible for projects involving control infrastructure assessment and development, enterprise risk management, implementation of energy transacting and risk management policies, selection of risk measurement methodologies, and the selection and implementation of energy risk management systems. Her knowledge of power system operations provides valuable insight into the application of risk management practices in electricity markets. …