Intro Video Transcript

Enterprise Risk Management (ERM): Three Stages of Maturity By Mary Driscoll Hello there, and welcome to my course on Enterprise Risk Management- Three Stages of Maturity. I’m Mary Driscoll and I’m the senior research fellow for financial management at the American Productivity and Quality Centre, otherwise known as APQC. What we’re going to do today is talk about some crucial issues that are now cropping up that have got board members, CEOs and CFOs and other senior executives very worried. Let’s start with some definitions: • What is Enterprise risk management (ERM)? We’ll talk about that. We will then talk about why it’s very crucial now. I’ve been writing about risk management, and ERM for a very long time, but there is definitely a see-change going on, and I will argue today that it’s imperative that CFOs and their senior directors take a careful look at their risk management models, particularly whether you call it strategic risk management, or enterprise risk management, it’s extremely important to take another look at the processes you have in place today to deal with this. I will argue that there is a new wave of regulations and enforcement that is now bearing down on CEOs, CFOs and boards of directors, very akin to the pressure felt by senior executives in the wake of the passage of the Sarbanes-Oxley regulation act over ten years ago. We will talk about the imperatives to improve, and why is there a change in the environment. Why do strategic risks today loom larger? And we’ll see why there’s pressure on boards calling for stronger ERM capabilities. To put it bluntly, the SEC passed a regulation a couple of years ago that holds board members personally liable if they do not do a sound job of providing what’s called oversight board, oversight of enterprise risk management processes and capabilities. Boards are also responding to demands from institutional investors, analyst credit rating agencies as we’ll see, and the cherry on top, there are now rising demands for disclosures about non-financial drivers of valuation. What could that mean? Well, if you are in a publicly traded or even a company owned by a private equity firm, or you are simply beholding to your owners and your capital providers, there’s more and more pressure on CFOs today to understand non-financial drivers of valuation, okay. What do I mean by that? Well, if, for instance you are an up and coming biotech company and you are engaged in some sort of clinical trials and investors want to know how well those clinical trials are going, or who has died from them, that sort of thing, non-financial drivers of valuation and we’ll talk a little more about that. Then, the heart of this course, we’ll look at some research findings that my team and I have come up recently with at APQC. We will talk about best practices. We have a very rigorous methodology for surveying the general population to understand trends and needs and then we have a pretty rigorous methodology for identifying companies who are on what can be called, maybe not the leading edge, but the pioneering edge, really trying very, very hard to get this right. We’ll talk about what we’ve identified as the three stages of process maturity and we’ll also talk about the growing trend with a need to do a better job of identifying and quantifying risk. Okay, yes, there’s a risk. Okay, you’ve got a competitor in the market place, but if that competitor comes out ahead of you with a new innovation, what is the potential impact on your current market share and your growth prospects?