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Board CEO Company Valuation Enterprise Risk Management ERM Opportunity Strategy

ERM Increases Company Valuation

the benefits are measurable

Enterprise Risk Management is viewed favorably by rating agencies, stock exchanges, regulators and other stakeholders – this is all good news.

But some boards and CEOs remain skeptical about ERM’s value: sometimes a perception reigns that ERM is a pure cost, a governance exercise, some box-ticking event, doesn’t deliver any topline and produces nothing but a thick report that nobody reads. The ERM-journey up the risk maturity ladder requires board and management commitment, hence the question arises: what is the return on this investment, in other words how does a CRO convince the board and the CEO that ERM creates value for the company?

Over the past two years two independent, reasonably comprehensive studies have shown that there is a good correlation between good ERM-practice and a company’s valuation – in other words: it pays to do ERM !

… our results suggest that firms that have reached mature levels of ERM are exhibiting higher firm value …

Gatzert and Martin

… results confirm a significant positive impact of ERM on shareholder value …

Farrell and Gallagher

references:

  • Risk Maturity Ladder is defined here
  • The valuation implication of ERM maturity. Mark Farrell & Ronan Gallagher, 2014
  • Determinants and value of ERM. Nadine Gatzert &┬áMichael Martin; 2016