Chapter 1 - Managing Risk Across the Enterprise: Challenges and Benefits

Abstract

At the highest level of government and industry, risk management has become more important than ever before. Whereas risk management has long been recognized as a core competence in banking, it has gained acceptance as a management discipline in other risk-intensive industries, including securities brokerage, asset management, insurance, energy, and large multinational corporations. More importantly, the practice of risk management has evolved from a silo (or functional) approach to an integrated enterprise-wide approach, also known as enterprise risk management (ERM). This chapter briefly discusses the ERM and its future. There are key forces driving the growth in, and acceptance of, the ERM. These forces include corporate disasters that have raised the level of awareness of board members and senior executives, new regulatory capital and examination requirements, industry initiatives on corporate governance and risk management, and leading companies that have experienced tangible and significant benefits from their ERM programs. Despite early skepticism, the ERM has been accepted both by corporate executives and regulators over the past decade. Some of the existing trends in ERM will continue as new trends emerge. The chapter also discusses the trends in ERM that are worth watching—such as application of ERM more broadly and deeply, increase in risk transparency for stakeholders, and so on.