Enterprise Risk Management: What the IRO Needs to Know
The Cincinnati Tri-State Chapter of NIRI held its third meeting of the season on January 11, 2012. Dave Faeth of Great American Insurance Group, John Byma of Procter and Gamble Company and Dr. Dan Heitger of Miami University led a discussion regarding Enterprise Risk Management (ERM) and unique aspects that pertain to investor relations. Below are some key points they shared at the meeting.
- An important objective of ERM is to reduce earnings volatility and create value. The process includes determining risk appetite and identifying key risks to better understand the risk/reward trade-offs. Related decisions include determining which risks to retain and which to limit, helping to optimize value creation. A common challenge for companies is consistency in value creation due to management distraction caused by risk-prone events.
- Common ERM topics discussed at public company boards of directors include responsibility for risk management within an organization and addressing emerging risks. Investor Relations Officers can play an important role in identifying emerging risks because of their industry knowledge and awareness of industry trends and news.
- Other specific application of ERM for Investor Relations Officers include:
- Compare what management communicates, both internally and during face-to-face discussions with investors, with risk factor communication in company annual reports on Form 10-K, and address any important gaps.
- Share questions from investors that relate to risk with ERM leaders in your company, helping to identify emerging risks.