For many years I’ve claimed that there are critical uncertainties of IT-led globalization that affect all business decision making: These being the confidence in the connected economy, the pace of globalization, regulatory change, the nature of warfare, the race for resources, and social e-governance. It is to sustain growth in the face of these critical uncertainties that businesses must embrace enterprise risk management. I shared these thoughts recently on a NYSE sponsored webcast, which is available for replay.
Of the six critical uncertainties, the most pressing recently has been the impact of regulatory change. If you are a banker at a large bank, regulators in the U.S. and U.K. have been in your face quite literally about ERM, but is this really the best reason to improve your ERM? According to the recent Gartner Global CEO survey, the greatest single category of business risk on the minds of senior executives is regulatory risk. Once again, is that the best reason to invest more in ERM? This focus on regulatory risk can cause an ERM program to become another compliance function focused on value preservation rather than on value creation.
A strong ERM program will place just as much emphasis on improving the business’ ability to achieve its growth objectives as it will on preserving current value. Understanding how risk affects business performance, that is knowing what risk-adjusted performance is for critical business objectives, is just as important as knowing what is being done to meet regulatory demands — more important really.
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