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6 - Current risk management practice and the rise of ERM

Published online by Cambridge University Press:  05 June 2012

Torben Juul Andersen  and
Peter Winther Schrøder
Torben Juul Andersen
Affiliation:
Copenhagen Business School
Peter Winther Schrøder
Affiliation:
Copenhagen Business School
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Summary

This chapter takes a closer look at some of the main drivers behind the demand for a new risk paradigm and outlines the risk management practices evolving from this development. The key components of enterprise risk management (ERM), as a proponent for the new risk paradigm, are described and compared with more traditional approaches to risk management. In this light we discuss the extent to which the new integrative risk paradigm enables corporations to manage their exposures in increasingly dynamic business environments, where organizations are faced with high levels of uncertainty and a decreasing ability to foresee events. The discussion identifies potentially crucial shortcomings associated with the current enterprise-wide risk management approaches, which suggest that some amendments to the generic ERM framework are required to ensure that risk events are identified in time and handled in ways that allow the company to gain foresight and become more responsive.

Drivers of the new risk paradigm

Risk management has long been considered a standard management activity, although the risk focus generally has been limited to those exposures that can be observed, measured and financed through insurance and other financial hedging products, including derivative instruments, or that can be contained through implementation of internal control systems. The main aim in conventional risk management has been to protect the company against the adverse economic effects of various risk events.

Type
Chapter
Information
Strategic Risk Management Practice
How to Deal Effectively with Major Corporate Exposures
 , pp. 120 - 145
Publisher: Cambridge University Press
Print publication year: 2010

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References

Andersen, T. J. (ed.), 2006. Perspectives on Strategic Risk Management. CBS Press: Copenhagen.
Andersen, K. and Terp, A., 2006. ‘Risk Management’ in Andersen, T. J. (ed.), Perspectives on Strategic Risk Management. CBS Press: Copenhagen.Google Scholar
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Gates, S., 2006. ‘Incorporating Strategic Risk into Enterprise Risk Management: A Survey of Current Corporate Practice’. Journal of Applied Corporate Finance 18(4), pp. 81–90.CrossRefGoogle Scholar
Haubenstock, M., 1999. ‘Organizing a Financial Institution to Deliver Enterprise-Wide Risk Management’. Journal of Lending and Credit Risk Management 81(6), pp. 46–52.Google Scholar
Henriksen, P. and Uhlenfeldt, T., 2006. ‘Contemporary Enterprise-Wide Risk Management Frameworks: A Comparative Analysis in a Strategic Perspective’ in Andersen, T. J. (ed.), Perspectives on Strategic Risk Management. CBS Press: Copenhagen, pp. 107–30.Google Scholar
Kleffner, A. E., Lee, R. B. and McGannon, B., 2003. ‘The Effect of Corporate Governance on the Use of Enterprise Risk Management: Evidence from Canada’. Risk Management and Insurance Review 6(1), pp. 53–73.CrossRefGoogle Scholar
Kontzer, T., 2004. ‘Siebel Sees Sarbanes–Oxley Taking Toll on Economy’. Information Week, 13 October.
Liebenberg, A. P. and Hoyt, R. E., 2003. ‘The Determinants of Enterprise Risk Management: Evidence from the Appointment of Chief Risk Officers’. Risk Management and Insurance Review 6(1), pp. 37–52.CrossRefGoogle Scholar
Power, M., 2007. Organized Uncertainty – Designing a World of Risk Management. Oxford University Press: New York.Google Scholar
Roth, J., 2007. ‘Myth vs Reality: Sarbanes–Oxley and ERM’. Internal Auditor 64, pp. 55–60.Google Scholar
Schrøder, P. W., 2006. ‘Impediments to Effective Risk Management’ in Andersen, T. J. (ed.), Perspectives on Strategic Risk Management. CBS Press: Copenhagen, pp. 65–87.Google Scholar
Smiechewicz, W., 2001. ‘Case Study: Implementing Enterprise Risk Management’. Bank Accounting and Finance 14(4), pp. 21–7.Google Scholar
Weinstein, B., 2003. ‘Risk Management versus the Loose Organisation’. Working Paper. Henley Management College, available online at www.henleymc.ac.uk.
Weinstein, B., Blacker, K. and Mills, R. W., 2003. ‘Risk Management for Non-Executive Directors: Creating a Culture of Cautious Innovation’. Henley Discussion Paper No. 2. Henley Management College.
Power, M. (2007). Organized Uncertainty: Designing a World of Risk Management. Oxford University Press: New YorkGoogle Scholar
Bettis, R. A. and Hitt, M. A. (1995). ‘The New Competitive Landscape’. Strategic Management Journal 16, pp. 7–19CrossRefGoogle Scholar
Andersen, K. and Terp, A. (2006). ‘Risk Management’ in Andersen, T. J. (ed.), Perspectives on Strategic Risk Management. CBS Press: CopenhagenGoogle Scholar
Schrøder, P. W. (2006). ‘Impediments to Effective Risk Management’ in Andersen, T. J. (ed.), Perspectives on Strategic Risk Management. CBS Press: CopenhagenGoogle Scholar
Gates, S. (2006). ‘Incorporating Strategic Risk into Enterprise Risk Management: A Survey of Current Corporate Practice’. Journal of Applied Corporate Finance 18(4), pp. 81–90CrossRefGoogle Scholar
Dembo, R. S. and Freeman, A. (1998). Seeing Tomorrow: Rewriting the Rules of Risk. John Wiley & Sons: New YorkGoogle Scholar
Galbraith, J. R. (1977). Organization Design. Addison-Wesley Publishing Company: Reading, MassachusettsGoogle Scholar
Kleffner, A. E., Lee, R. B. and McGannon, B. (2003). ‘The Effect of Corporate Governance on the Use of Enterprise Risk Management: Evidence From Canada’. Risk Management and Insurance Review 6(1), pp. 53–73CrossRefGoogle Scholar
Liebenberg, A. P. and Hoyt, R. E. (2003). ‘The Determinants of Enterprise Risk Management: Evidence from the Appointment of Chief Risk Officers’. Risk Management and Insurance Review 6(1), pp. 37–52CrossRefGoogle Scholar
Roth, J. (2007). ‘Myth vs Reality: Sarbanes–Oxley and ERM’. Internal Auditor 64, pp. 55–60Google Scholar
Henriksen, P. and Uhlenfeldt, T. (2006). ‘Contemporary Enterprise-Wide Risk Management Frameworks: A Comparative Analysis in a Strategic Perspective’ in Andersen, T. J. (ed.), Perspectives on Strategic Risk Management. CBS Press: Copenhagen, pp. 107–30Google Scholar
Smiechewicz, W. (2001). ‘Case Study: Implementing Enterprise Risk Management’. Bank Accounting and Finance 14(4), pp. 21–7Google Scholar
Dickinson, G. (2001). ‘Enterprise Risk Management: Its Origins and Conceptual Foundation’. Geneva Papers on Risk and Insurance 26(3), pp. 360–6CrossRefGoogle Scholar
Haubenstock, M. (1999). ‘Organizing a Financial Institution to Deliver Enterprise-Wide Risk Management’. Journal of Lending and Credit Risk Management 81(6), pp. 46–52Google Scholar

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