Enterprise risk management (ERM) is an old idea that has gained renewed focus and relevance in the wake of the financial crisis. All industries are now facing unprecedented levels of risk. The pace of change and the speed of information flow are causal factors in the escalation of risk. Advancements in technology have spawned new business models that drive these changes and new threats, ranging from data vulnerability to the viral spread of rumours via social media. This has also resulted in an increasingly interdependent world where the sourcing practices of a manufacturer in Delhi can cause regulatory and reputational consequences for a business in Dallas.
Alarmed by the escalating risks, investors, regulators and rating agencies are challenging companies to be more transparent about their risks and more effective with their ability to manage them. As the bar rises, managing risks in silos is no longer seen as acceptable. The sanctions for failing to meet stakeholder expectations range from market losses and share price declines to enforcement action and lasting reputational damage.
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