ERM Adds to Brand Image and Competitive Advantage

A recent report by the Aberdeen Group reveals the concerns of executives today and their interest in developing Enterprise Risk Management ("ERM") programs. The report includes survey results from 213 finance executives regarding their views of ERM.  One of the more telling results from the study is the listing of top catalysts for creating an ERM program (see figure 2 below). Rather than compliance requirements heading the list (as was the case for most companies before the financial crisis of 2008), now companies are more concerned about their brand image and competitive advantage. A close second on the list is the financial impact from the market upheaval as described in the report excerpt below.

With increased consumer and governmental scrutiny, today more than ever companies must be aware of events that directly impact their brand image. Maintaining credibility with investors and stakeholders can drive up the cost of capital; for publicly traded companies that are more regulated and expected to demonstrate good governance, this can translate to significant stock price movements and debt-rating downgrades.

Related to the issue of cost of capital, the economic upheaval also drove up the cost of credit and limited availability to the companies with the highest credit ratings. As capital is further constrained, businesses also need to be concerned about potential disruption and even failure.

The cost of not having an effective ERM program has certainly ratcheted up over the past few years.  The question now becomes "can you afford not to invest in an ERM program?"