Enterprise Risk ManagementTreasury Management

Treading Carefully: Growing List of Risks Moves ERM to the Forefront

By September 30, 2021No Comments

Treasury teams communicating with the board on financial risk need a common language.
NeuGroup’s longstanding enterprise risk management (ERM) group has nearly doubled in size in less than a year, perhaps unsurprising given the relentless unfolding of political, environmental, health and financial risks worldwide, and global companies’ likely exposure to many of them.

  • Assistant treasurers in a recent meeting compared the roles their treasury departments take within ERM and got insight from the head of ERM at a Fortune 500 technology firm on how to bolster the function.

The rise of ERM. Ted Howard, who leads the peer group, noted the recent emergence of key risks—ESG, for example—as one of several reasons fueling ERM as a priority for companies.

  • Another is the insurance market’s currently high premiums, encouraging senior leadership to emphasize more management of risks internally.
  • In addition, the ERM function’s ability to identify, quantify and qualify the types of risks requiring better control has greatly improved, Mr. Howard said, adding, “And what I keep hearing in our group is people asking, ‘How do you build a risk culture?’”

Treasury leads financial. One AT said ERM was added to her responsibilities a year ago, and the finance pillar—one of several risk pillars in her company’s ERM program—sits squarely in treasury rather than other parts of corporate finance.

  • The ERM executive presenting to the group said his company has 20 or so functional groups, each with a “risk-champion subject matter expert,” including investor relations, human resources, and all the business units.
  • “They’ve been trained in decision-making and risk management, and as the likelihood of them achieving their goals improves, the company as a whole benefits.”
  • The AT of a consumer goods company said ERM sits within treasury, noting the treasurer recently spoke to the audit committee about rising risks and mitigation efforts, and provided a subset session on ERM.
    • A large manufacturer’s AT added that ERM sits in the audit unit, but “treasury naturally leads initiatives related to finance.”

Where the risk lies. The AT a medical device company said treasury took responsibility of ERM a few years ago, but it has since moved to operations, where risks are deemed more significant.

Patience, communication and pre-mortems. Noting ERM may become one of a treasury leader’s several responsibilities, Mr. Howard asked the ERM executive for advice on where to focus.

  • For starters, he said, be patient, because adopting ERM is a culture change, and that takes time. Support from the board of directors and the executive team is essential, as is developing a common language to communicate about ERM to them and with those responsible for ERM in other units.
    • “Without a singular language, it’s hard for the board to understand and compare and make decisions about where to invest,” he said.
  • Do a “premortem” risk analysis, the executive said. That’s where a team embarking on a project or strategy is asked to assume, hypothetically, that it fails and quickly analyze what risks led to the failure.
  • This, he said, will typically result in a longer and more objective list of risks than a postmortem analysis, when team members tend to defend the plan they had followed.

Tech tip. An AT asked whether the ERM executive had found software to facilitate the ERM process. Nothing off the shelf that met all his needs, he said.

  • But his company’s research and development team adapted Atlassian’s Jira project management software to create a web interface that enables employees across the company to input risks.
Justin Jones

Author Justin Jones

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