While more corporate boards are driving enterprise risk management, ERM has yet to become embedded in most companies' day-to-day activities, according to a report released today by a nonprofit business research group.
The New York-based Conference Board study, sponsored by Oliver Wyman, a global management consultancy, found that 55 percent of the participants indicated their corporate boards are a top driver of their enterprise risk management program, up from 49 percent just two years ago.
Conference Board's study states it is based on a survey of risk, audit and finance executives of 200 companies from a range of sectors including manufacturing, financial services, health care, energy and utilities, wholesale and retail, communications, transportation, warehousing, and business and professional services.
Despite the finding of increased board participation, the report said ERM, a strategic method of understanding and managing risks, is not being integrated in corporate cultures.
The ERM progress has been mainly in early stage efforts, such as creating a risk inventory and assessment process. As such, key ERM benefits in managing the overall corporate risk profile and portfolio have not yet accrued in most companies, the survey found.
The Conference Board said its survey, conducted during 2006 and 2007, was designed to update its 2004 survey of 271 companies on ERM. The latest results show that, almost universally, there is greater awareness of risk across companies.
Executives now report that the top of the organization is far more interested in ERM than previously. While chief executive officers in particular are slightly less certain than in 2004 that ERM is crucial to performing their own role, this result could be partly because many CEOs are delegating risk management responsibility to chief risk officers and other high-level executives.
Executives surveyed indicated that in 2006, 34 percent of their corporate boards–up from 29 percent in 2004–believe ERM is significant or highly significant in carrying out their stewardship roles.
The study found substantial differences in ERM maturity across industries: financial services, energy and utilities have more developed ERM processes than other industries. However, there has been rapid growth in ERM in the health care sector over the past years, the Conference Board said.
Companies that are outside of North America, the report said, have developed processes at a faster pace and have a higher rate up and running.
Implementing ERM in a company generally takes three to five years. And companies often find they start and restart crafting an ERM framework that is viable for their particular organizations, according to survey results.
Among core business functions (such as legal, chief financial officer, CEO and board), there is general agreement on the importance of ERM–nearly one-third of each of these functions consider ERM to be of critical importance to their business, the survey found.
"Once adopted and implemented broadly throughout the firm, ERM becomes truly part of how companies do business," said Ellen Hexter, head of The Conference Board Enterprise Risk Management Center and author of the report, in a statement. "The goal is to create greater awareness of risk and reward tradeoffs and to drive risk thinking and appropriate risk management throughout businesses."
She said ownership is a critical operational and cultural component to enterprise risk management. "When risks are identified and assigned to individuals, there is likely to be greater accountability for each risk and greater understanding of how any specific risk impacts a business," Ms. Hexter observed.
The majority of companies represented in the current survey of risk, audit and finance executives reported $1 billion in revenue, with only 22 percent reporting less than $1 billion revenue. Seventy percent are based in North America, 22 percent are from Europe, and 8 percent represent the rest of the world.
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