Risk Management Receiving More Attention & Investment

The New York Times reported this week that senior executives at major corporations are now investing more time and money to develop effective risk management practices at their companies.  Here is what they had to say.

Corporate leaders are focusing more attention on risk management after excessive risk-taking during the boom times helped bring about the global financial crisis, according to a survey of senior executives by Korn/Ferry International, the world’s largest recruiting firm. About 57 percent of senior executives surveyed said their companies were spending more time dealing with risk management, while 26 percent said there had been no change at all. Only 14 percent said their companies were actually spending less time on risk management.

The chief executive is usually called out first if a company runs into trouble with its risk management. That led to some prominent resignations in the banking sector in 2007, including E. Stanley O’Neal from Merrill Lynch and Charles O. Prince III from Citigroup.  Corporate boards are largely seen as weak when it comes to making tough decisions, especially in cases where the chief executive is also the chairman. The study indicates that boards today are more aware of how important risk management is to a company’s survival than they were during the boom times.

The reasons for this increase in investment should come as no surprise given the crisis we have experienced. However, it is imperative that the focus on remains on risk management long after the crisis has faded from our memories. Otherwise, the increased investment will certainly be wasted.