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