Now, More than Ever, We See the Importance of Risk Management Practices
On April 14, 2020 Bloomberg published, “Risk Manager Is Suddenly a Hot Job”, an article that describes how the current pandemic has spurred corporate Boards to seek risk managers. While the recent events related to COVID-19 have highlighted the importance of sound risk management practices, they have also exposed potential shortfalls within existing organizations. Many businesses have been caught flat-footed and without experienced personnel and mitigation plans in place to deal with the recent pandemic. Many will be quick to throw their hands up and say, “nobody could have seen this coming.” However, most experienced Chief Risk Officers will tell you that very few didn’t see this coming.
In 2018, the National Assoc. of Corporate Directors (NACD) commissioned a Blue-Ribbon Report on Adaptive Governance. The results indicated that most organizations were unprepared for volatile, uncertain, complex, ambiguous (VUCA) environments. While 62% of Directors viewed disruptive risks as much more important than 5 years ago, only 19% had confidence in their management and project teams to handle risks when they emerge.
A decade or two ago, information moved at a much slower pace and our world was less connected. Risk assessment and risk management processes were largely “behind the scenes” endeavors. As the Bloomberg article states, “twenty years ago, corporate risk managers had near-zero public visibility. Most were back-office staffers who focused on securing insurance for environmental and real estate problems.”
Today, organizational Boards and senior management face an ongoing barrage of atypical risks that are hard to fully comprehend. Companies are regularly exposed to liabilities that have the potential to destroy decades of value within a single news cycle. Simply stated, the stakes today are higher than ever before and the demand for risk management experts and Chief Risk Officers who are adept at identifying and providing risk mitigation has never been greater.
How do organizations and senior leadership gain confidence in their Board’s ability to develop risk management plans and govern through times of emerging disruptive risks? The answer is three-fold:
First, Boards should direct their organizations to move quickly toward embracing ERM frameworks for governance.
Second, the role of a Chief Risk Officer (CRO) should be established within the organization to oversee the implementation and the governance of ERM systems. With this being said, as salaries soar for experienced CRO’s, the scarcity of expertise in the area sometimes requires solutions be found among existing organizational talent. While not ideal, organizations must have management strategies in place with personnel who can provide the needed oversight.
Finally, senior management and board members should gain education and exposure to ERM governance, leadership and frameworks at an expert level. The stakes and risks that organizations face today simply demand this.
If you will be in a position of leadership when a risk event occurs now, more than ever, is a time to seek quality educational programs on ERM. Look to colleges and universities with established centers in risk management and specializations in ERM curriculum.
Make sure the educational program you seek is not a “traditional” risk management program, but rather one that offers a multi-discipline approach. Ideally, you should seek a top-rated and accredited business college (AACSB) offering ERM programs that allow studies within strategic, operational, financial, compliance and emerging risk courses. Additionally, look for programs which have an applied component, allowing you the opportunity to develop ERM implementation plans for an organization.
Risk will always be present in businesses, both big and small. The current pandemic has made organizations even more aware of the importance of having a management team in place who can provide risk analysis, project future risk and develop contingency plans when risk is realized.
This article was a contribution by Ed Horwitz, PhD. Dr. Horwitz is the Mutual of Omaha Endowed Executive Director in Risk Management, and Associate Professor of Practice in economics and finance at Creighton University Heider College of Business. A business management senior executive with over 30 years of experience in the Financial Planning and Insurance Industry, Dr. Horwitz is regarded as a knowledgeable and optimistic leader who brings a winning attitude and trusted confidence to all settings. He is experienced in the development, implementation and coordination of new collegiate educational programs for financial planning, insurance, enterprise risk management, and financial psychology.
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