Ironically, perhaps, a major investment in ERM software strikes many C-level executives as risky, given how scarce cash is at the moment. Directors at Ensign-Bickford Industries, a diversified manufacturer, are in the beginning stages of reviewing an ERM system, but the collapse of so many Wall Street titans may give their senior management second thoughts. “ERM was supposedly working well for the financial-services industry, but, as we’ve seen, it broke down somewhere,” says corporate risk manager Rick Roberts. Although tarnished, ERM remains viable, he adds.
Indeed, one of the most shocking aspects of the collapse was that it took place in an industry widely regarded as having state-of-the-art ERM practices. “I hope that one of the things that comes out of this experience,” says StanCorp’s Chadee, “is a sober look at what the industry means by ERM.” Chadee says part of that would hinge on a move away from sales hype in favor of programs that cater to unique corporate cultures and risk appetites.
Another part of that sober look, experts say, would involve focusing more attention on truly understanding the risks that shape strategy and tactics. “Businesses have clearly managed risk for centuries,” says Beasley, “but this situation calls into question the quality of risk-management processes in relation to strategies.”
Progress may depend largely on incremental improvements rather than technological leaps or massive consulting engagements. Existing risk-reporting processes must break down silos that impede risk oversight and prevent a broader awareness of risk throughout the organization. “It’s certainly a major mind shift in corporate thinking,” says Beasley. “It has to convey top-down endorsement from the board and executive suite.” And, he says, it won’t happen overnight.
Unfortunately, regardless of which approach a company decides to take to get its risk-management capabilities up to speed, expect to devote plenty of time and effort to it. “It’s not something that you can just decide to do in a week,” says Chadee. “It builds through the consciousness of the organization and becomes part of the DNA of the organization.” In fact, he says, while it’s critical to get executive sponsorship, true success depends on a far more organic process. “When you start developing risk in conversation,” he adds, “the formality will develop around it.”
On the plus side, odds are good these days that risk is coming up in just about every water-cooler conversation — assuming companies haven’t canceled the water-delivery service.
Kate Plourd is a reporter at CFO.
Risk isn’t just ubiquitous these days; it has an unpleasant way of appearing out of nowhere. Art-supply retailer Hobby Lobby, which operates 392 stores in 38 states, thought it had a firm grasp of its own risks. But when the industry experienced weakness, CFO Jon Cargill grew concerned about potential problems in his supply chain. Cargill says he “immediately identified other vendors that we could give additional capacity to if some of the factories closed and vendors ceased to exist.” But the lesson was clear: risk managers now need a much wider field of vision if they hope to successfully see what’s coming at them.
Franklin Covey, which trains its customers to sharpen leadership skills and strategic thinking, has put particular emphasis on stress-testing its cash-management policy against worst-case scenarios. “We have assessed business conditions in every way we can think of, from our basic cash position to catastrophic situations,” says CFO Steve Young. “We’re far more compelled to do that now than in the past.” — K.P.