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The financial crisis of the past two years has increased the attention from regulators and other stakeholders on the way companies oversee risk management. A recently enacted rule from the Securities and Exchange Commission (SEC), for example, focuses on companies' disclosures of board measures to manage enterprise-wide risks, including policies related to risk identification, risk appetite, and management of risk/reward tradeoffs throughout the enterprise.
In a recent edition of Marsh's Webcast series The New Reality of Risk, a panel of risk specialists analyzed trends in enterprise risk management, risk governance, and related disclosure issues.
"The financial crisis has driven home the idea that the marketplace's view of risk has been limited to a dated consideration of insurance and sorely needs an update," said Mat Allen, leader of Marsh's Enterprise Risk Services and Solutions Practice.
"With the crisis has come the view that there simply has to be a movement to a more advanced consideration of risk. Regulators, customers, suppliers and, most importantly, shareholders are now demanding it." A key to the discussion, he said, is enterprise risk management (ERM).
Panel member John Jarrett, director of research at governance watchdog GovernanceMetrics International, said his firm has already seen a wide variation in the way companies are handling the new SEC disclosure requirements. Although some companies have gone beyond what is required in their proxy statements, others have made only "perfunctory" disclosures, he said.
"Investors want to know what is happening and whether boards and management are serious about the long-term health of their companies," Jarrett said. "They also want to see that the board is taking open-eyed strategically based risks, rather than dealing with individual risks in isolation, whilst missing the big picture."
Denise Kuprionis, Vice President, Secretary and Chief Ethics and Compliance Officer at the E.W. Scripps Company offered a view from the front lines of working with the new disclosure requirement. Meeting the disclosure requirements will "not be an easy thing," she said, "but it is the right thing." Kuprionis presented listeners with some of the steps Scripps has undertaken to bring risk issues to its board of directors, which includes presenting written and oral report to the board and its audit committee during the year.
"It's important to remember that risk is good—companies have to take risks to be successful, but risk has to be consciously thought about and monitored in an integrated way." She and other panel members stressed the need to prevent risk management from becoming "siloed" in different areas within a company.
Although the SEC rule applies only to publicly traded companies, many private companies are paying attention and deriving best practices from their public peers, said Christy Kaufman, a vice president with Marsh's Enterprise Risk Services and Solutions Practice. She said an analogy can be made to the impact the Sarbanes-Oxley regulations had a few years ago.
Listen to the replay of the Webcast.
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