Newly Released ERM Report from The Economist

As the economy continues to weaken and capital markets are shaken to their core, Enterprise Risk Management ("ERM") is surfacing as a "must-have" program for not only the largest financial services firms, but also for companies of all sizes.  Just this month, a new report published by The Economist Intelligence Unit underscores the need for solid ERM programs.

The report is based on a survey of 316 senior executives from around the world.  Among the respondents questioned for the study, 59% say the credit crisis has forced them to scrutinize their risk management practices in greater detail.  Yet, despite the growing appetite for ERM, many companies are still in the early stages of implementation with only 18% of those surveyed saying they have an ERM strategy in place that is well-formulated and rolled out across the business.  A key challenge for many financial services companies is that the move to an enterprise-wide risk management approach is lengthy and often involves a shift in corporate culture.

Key findings of the survey include:

An expectation of growing regulatory pressure will increase the implementation of ERM.  In the wake of recent recommendations from regulators and industry groups, rating agencies are likely to step up the pressure on firms to adopt best practices in risk management.  Of those polled in the report, 72% say regulators are exerting pressure on their firms to implement or refine an ERM strategy.

Protection against loss and damage is the most important potential benefit of an ERM strategy.  For those executives who embrace an enterprise-wide approach to risk, the benefits can be plentiful.  As well as protection against loss and damage, executives also cite more efficient allocation of capital as a clear benefit of an enterprise-wide risk approach, while a reduction in losses is seen as another advantage.

Embedding risk management into the company culture is one of the toughest challenges when implementing an ERM strategy.  Nearly half of all respondents surveyed say that creating a culture for risk management is a challenge.  Difficulties that need to be addressed include reluctance to change, or reluctance among organizations to assume the responsibilities of risk management.  New organizational structures can play a key role in developing this culture.

What are your thoughts?  Do you agree with the report?  Should companies increase investment in ERM programs?  Please share your thoughts by commenting below.   For more details on the survey results, click here.