Enterprise Risk Management, 2nd Edition

CHAPTER 41Enterprise Risk Management: Lessons from the Field

 

WILLIAM G. SHENKIR, BBA, MBA, PhD, CPA

William Stamps Farish Professor Emeritus, University of Virginia's McIntire School of Commerce

 

THOMAS L. BARTON, PhD, CPA

Kathryn and Richard Kip Professor of Accounting, University of North Florida

 

PAUL L. WALKER, PhD, CPA

Associate Professor of Accounting, University of Virginia

 

You can resist an invading army; you cannot resist an idea whose time has come.

—Victor Hugo

 

INTRODUCTION

In 2008 and 2009, the U.S. economy was reeling from what many described as the worst financial crisis since the Great Depression. Analysts of the crisis have been asking, “How could so many capable executives, regulators, the congress, and the administration have underestimated the enormous risk in the subprime mortgage market and related areas such as securitized subprime loans and credit default swaps?” The crisis seemed to indicate that the drive for profits by some organizations was accompanied by questionable risk management practices.

Before the financial crisis, some leading opinion-making organizations recognized that enterprise risk management (ERM) was an idea whose time had come. In 1999, a blue ribbon commission of the National Association of Corporate Directors (NACD) concluded that audit committees should “define and use timely, focused information that is responsive to important performance measures and to the key risks they oversee” (National Association of Corporate ...