Boards on the Hunt for Talent to Implement Enterprise Risk Management Initiatives
Fears that the current liquidity crunch will spark a U.S. recession in the next 12 months underscores the need for new thinking on systemic financial risk and rigorous action in a number of problem areas, according to GlobalRisks 2008 - the latest report from The World Economic Forum released today. In response to the revolution in financial markets over the last two decades, the report not only recommends a set of principles for country risk management but also examines how the financial sector might take on an increasingly important role in risk transfer in the future.
Changes in the financial markets over the past two decades have led to the ownership of risks being decentralized, along with greater opportunities for risks to transmit between individual firms and markets, according to the World Economic Forum report. As a result, effective risk management and corporate governance has become all the more critical. In order to mitigate the impact of the types of challenges seen in 2007, the report calls for increased public and private sector collaboration on stress testing, liquidity management, risk assessment and prevention in order to address what it describes as the “fragmentation of ownership of global risks.”
Fed Governor, Susan Bies (a former Chief Risk Officer at a commercial bank) has said that, “The financial services industry continues to evolve to meet the challenges posed by emerging technologies and business processes, new financial instruments, the growing scale and scope of financial institutions, and changing regulatory frameworks. A successful enterprise risk-management process can help an organization meet many of these challenges.”
Enterprise risk management (ERM) can be described as a risk-based approach to managing an enterprise. ERM involves the integration of strategic planning, operations management, and internal controls - a framework to safeguard a firm against losses, earnings surprises, and other financial risks. It can also provide protection against fraud, systems failure and compliance violations. ERM is currently evolving to address the demands of shareholders who are demanding a clearer view of the risks facing companies and the processes in place to manage those risks. Bies has stated that by providing such a framework, “managers can explicitly consider how the organization’s risk exposures are changing, determine the amount of risk they are willing to accept, and ensure that they have the appropriate risk mitigants and controls in place to limit risk to targeted levels.”
Today, corporate boards are facing unparalleled levels of business complexity, a constantly changing political landscape, new regulations and mounting shareholder demands. In an attempt to tackle these challenges, business leaders are gravitating towards enterprise risk management in assessing a firm’s strategic objectives and associated risks.
Additionally, as corporate governance issues garner more attention, more importance is being placed on information technology. According to Bies, institutions are also discovering that technology and business process changes are a growing source of risk exposures, or operational risk. Bies has stated that operational risk data shows that one of the most prominent cause of losses are due to breakdowns in execution, delivery, and process management.
Ultimately, the failure to identify and manage strategic risk can weigh heavily on a company’s bottom line. Thus, understanding and managing risk is quickly becoming a top priority for corporate boards. Executive recruiting firm, A.E. Feldman, reports that this is just one reason why significant opportunities are opening up for qualified professionals.
A.E. Feldman says board directors are pushing top executives to pursue enterprise risk management initiatives. High-level candidates with a top-down view of governance issues, including risk management and compliance, from an enterprise perspective are in demand. Ultimately, the goal of these initiatives is to ensure that an organization is on target to meet its business objectives. Companies must track and quantify material risks, minimize losses, improve business processes, and provide greater accountability.
A.E. Feldman says senior-level talent who can look at an enterprise as a whole and determine the company’s needs and communicate those needs effectively to the board of directors are in great demand. Candidates must have industry-specific expertise in financial and operational risk implications. Senior operations risk professionals must also possess strategic ability, excellent analytical skills as well as an understanding of technology. Additionally, the recruiting firm says compliance candidates must be knowledgeable of various industry-specific regulations and critical financial and operational procedures and processes.
