Enterprise Risk Management

CHAPTER 4The Role of the Board of Directors and Senior Management in Enterprise Risk Management

BRUCE C. BRANSON

Professor of Accounting and Associate Director, North Carolina State University Enterprise Risk Management Initiative

INTRODUCTION

The oversight of the enterprise risk management (ERM) process employed by an organization is one of the most important and challenging functions of a corporation’s board of directors. In concert with senior management of the company, the board must establish the appropriate “tone at the top” to ensure that risk and risk management considerations remain at the forefront of strategic and operating decisions made within the business. The 2008–2009 global financial crisis and the rapidly deteriorating global economy has created a context in which companies now face risks that are more complex, more interconnected, and potentially more devastating than ever before. Failure to adequately acknowledge and effectively manage risks associated with decisions being made throughout the organization can and often do lead to potentially catastrophic results.

We need look no further than to the current status of the financial services sector to observe the devastation associated with poorly monitored and managed risk taking. Risks associated with credit quality, liquidity, market disruptions, and reputation have all contributed to unprecedented bankruptcies, bank failures, federal government intervention, and rapid (and forced) consolidation within the ...