Governance, Risk Management, and Compliance: It Can't Happen to Us—Avoiding Corporate Disaster While Driving Success

Drivers for ERM

What drives ERM implementation? In some cases senior management realizes it doesn't really have a good handle on what risks out there could jump up and bite the company. Executives may be aware that they don't know what dangers are lurking and want to be proactive in avoiding unpleasant if not disastrous surprises. They may have heard a good deal about enterprise risk management and decided to gain the associated advantages.

While that scenario sometimes plays out, quite frankly it's rarely what happens, especially when we're talking about a company's chief executive. CEOs typically are focusing primarily on future goals and working hard to carry out strategic plans to profitably grow the business. The vast majority of CEOs I've worked with are optimists, seeing the potential of the business and motivating their people in the organization to stay on course to get the company where they want it to go.

So where does the impetus for ERM normally come from, if not from the CEO? Typically it comes from one of two sources—the board of directors or senior management staff.

Directors

To properly carry out its oversight responsibilities, the board must be comfortable that management is doing a good job in identifying and managing risk. And it's difficult for a board to gain such comfort unless it knows that management has an organized process for risk management.

Boards' focus springs from other sources as well. A primary driver is the New York Stock Exchange listing requirement ...