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Incorporating Strategic Risk into Enterprise Risk Management: A Survey of Current Corporate Practice

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  • Stephen Gates

Abstract

Since ERM is a relatively recent activity and has yet to be fully implemented in most companies, there has been little academic research about its accomplishments and about the obstacles to further progress. In particular, very little has been published about corporate attempts to identify and manage corporate strategic risks while integrating them into a corporate‐ wide ERM framework. This article uses responses collected from a survey of 271 risk and financial executives in North American and European companies to address the following questions: What forces are behind this push for a more organized and integrated management of significant risks? What challenges are companies encountering as they implement implement ERM? Once fully in place, how does ERM affect the company's ability to implement its strategy? The primary drivers of ERM are said to be corporate governance requirements and other regulatory pressures, and management and investor demand for greater understanding of strategic and operating risks. The benefits of full ERM implementation are increased management accountability and better governance practices, greater managerial understanding of and consensus about corporate strategy, and, in some cases, higher credit ratings and hence a lower cost of capital. The tools and techniques to measure the impact of strategic risks appear to vary, depending on the stage of ERM implementation. For advanced ERM companies, the most frequently used tools and techniques are key risk indicators, self‐assessments, and scenario analysis.

Suggested Citation

  • Stephen Gates, 2006. "Incorporating Strategic Risk into Enterprise Risk Management: A Survey of Current Corporate Practice," Journal of Applied Corporate Finance, Morgan Stanley, vol. 18(4), pages 81-90, September.
  • Handle: RePEc:bla:jacrfn:v:18:y:2006:i:4:p:81-90
    DOI: 10.1111/j.1745-6622.2006.00114.x
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    Cited by:

    1. Madhu Acharyya & Chris Brady, 2014. "Designing an Enterprise Risk Management Curriculum for Business Studies: Insights From a Pilot Program," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 17(1), pages 113-136, March.
    2. Nelson Nkwasibwe & Atuhereze Elly Katsigaire, 2022. "Credit Risk Assessment and Financial Perfomance of SACCOs. A Case of Selected SACCOs in Ibanda Municipality," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 6(12), pages 305-311, December.
    3. Ousmane COUNDOUL & Massene GADIAGA & Anne-Marie GEOURJON & Bertrand LAPORTE, 2012. "Inspecting less to inspect better: The use of data mining for risk management by customs administrations," Working Papers P46, FERDI.
    4. Therese R. Viscelli & Mark S. Beasley & Dana R. Hermanson, 2016. "Research Insights About Risk Governance," SAGE Open, , vol. 6(4), pages 21582440166, November.
    5. Danijela Miloš Sprčić & Marina Mešin Žagar & Željko Šević & Mojca Marc, 2016. "Does enterprise risk management influence market value – A long-term perspective," Risk Management, Palgrave Macmillan, vol. 18(2), pages 65-88, August.
    6. Carmen Nadia Ciocoiu & Adina Liliana Prioteasa & Sofia Elena Colesca, 2020. "Risk Management Implementation for Sustainable Development of Romanian SMEs: A Fuzzy Approach ...........," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 22(55), pages 726-726, August.
    7. René Aïd, 2008. "Long-term risk management for utility companies: the next challenges," Working Papers hal-00409030, HAL.
    8. Andrew F. Whitman, 2015. "Is ERM Legally Required? Yes for Financial and Governmental Institutions, No for Private Enterprises," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 18(2), pages 161-197, September.
    9. Ousmane COUNDOUL & Massene GADIAGA & Anne-Marie GEOURJON & Bertrand LAPORTE, 2012. "Contrôler moins pour contrôler mieux : l’utilisation du data mining pour la gestion du risque en douane," Working Papers P46, FERDI.
    10. Arena, Marika & Arnaboldi, Michela & Azzone, Giovanni, 2010. "The organizational dynamics of Enterprise Risk Management," Accounting, Organizations and Society, Elsevier, vol. 35(7), pages 659-675, October.
    11. Posch, Arthur, 2020. "Integrating risk into control system design: The complementarity between risk-focused results controls and risk-focused information sharing," Accounting, Organizations and Society, Elsevier, vol. 86(C).
    12. Levente Bakos & Dănuț Dumitru Dumitrașcu, 2021. "Decentralized Enterprise Risk Management Issues under Rapidly Changing Environments," Risks, MDPI, vol. 9(9), pages 1-19, September.
    13. Desheng Wu & David Olson, 2011. "Foreword," Annals of Operations Research, Springer, vol. 185(1), pages 1-3, May.
    14. Eckles, David L. & Hoyt, Robert E. & Miller, Steve M., 2014. "Reprint of: The impact of enterprise risk management on the marginal cost of reducing risk: Evidence from the insurance industry," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 409-423.
    15. Eckles, David L. & Hoyt, Robert E. & Miller, Steve M., 2014. "The impact of enterprise risk management on the marginal cost of reducing risk: Evidence from the insurance industry," Journal of Banking & Finance, Elsevier, vol. 43(C), pages 247-261.
    16. Sandra Karklina-Admine & Aldis Cevers & Arturs Kovalenko & Armands Auzins, 2024. "Challenges for Customs Risk Management Today: A Literature Review," JRFM, MDPI, vol. 17(8), pages 1-19, July.
    17. Mónica Hernández-Madrigal & Cristina Aibar-Guzmán & Beatriz Aibar-Guzmán & Élfego Ramírez-Flores, 2020. "Are external pressures always behind ERM implementation? Evidence from Spanish listed firms," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 17(2), pages 86-100, September.

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