By CYRIL TUOHY, managing editor of Risk & Insurance®
If ever we needed an example of the shortcomings of enterprise risk management (ERM), the past two years have been it. How can anyone possibly take enterprise risk management (ERM) seriously after what GM, AIG and Citibank have put us--taxpayers--through?
The last time we checked these three staples of Corporate America had risk managers on their payrolls. So where were the risk management programs designed to avoid the near-collapse that wracked each of these huge companies?
Perhaps risk managers, with their mountains of loose-leaf ERM binders, should have been hauled before congressional committees to testify in full view of the U.S. public.
Where were the checks and balances? Where were the departments all working in concert, as an enterprise, to manage the risk? Where was the discussion about capital models? We now know that none of these companies had a viable risk management program; and even if they did, the programs were hardly ingrained throughout the enterprise. They may have had a workers' comp program or a general liability program or even an alternative risk program.
But none had a truly global view of their risks, which is what an ERM program is designed to do. Whatever ERM initiatives had taken root within those corporate fortresses had long ago been left to die on the vine. The colossal failure of risk management within the enterprise to prevent the near-collapse of the nation's financial system raises troubling questions about the entire discipline.
Skeptics of ERM have often pointed out that such overarching "strategic" initiatives are little more than expensive make-work programs for consultants and executives looking to justify their service to the corporate client.
For years the doubters had questioned the ability of management to execute on such a grand plan, one that would protect and balance the risks faced by the largest corporation competing in a world changing at breakneck speed.
In this case the skeptics were right. For all the talk about holistic "enterprisewide" visions dominating the thinking among the top corporate officers, few companies anywhere had anything to show for it in the wake of the balance sheet ravages caused by this latest recession.
In the end, ERM did nothing to help our most valuable corporations, which were left to beg for money from Uncle Sam already so deep in debt that it's unlikely any of us will ever again see our government run a surplus.
The time has come to rethink the value and the worth of ERM, and wake up from what has been one hell of an expensive--and expansive--managerial fantasy.
(Read Matthew Brodsky's Point on this topic, "ERM: Risk Management's Breakthrough")
April 1, 2010
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