Risk Management: Evolve or Step Aside

Steven Minsky | Feb. 19, 2008

The business environment evolves, organizations evolve and people’s roles and contributions must evolve as well. Some risk managers have expressed frustration due to insufficient resources or support from senior management. Risk managers who have an active role in financial reporting compliance activities (e.g., SOX 404) however, find their departments’ visibility and influence within the organization high. Such was the case at Alfa Corporation.

This month’s Treasury & Risk Magazine cover story, Audit Busters, explains the business case for the CRO partnering with the CFO at Alfa Corporation resulting in the transformation of their compliance programs to serve their business strategy while reducing their external audit hours by 60% at the same time.

With the right ERM infrastructure, the CRO can now offer your CFO the capability to manage tomorrow’s financial surprises today while there is still time to change the outcome. New AS5 legislation that mandates a top–down, risk–based approach provides risk managers with the opportunity to deliver measurable financial and strategic value while building the right ERM infrastructure that easily extends to all areas of the business.

The stakes are high: 
If history repeats itself, according to CFO magazine, How a Material Weakness Can Cost You, more than 11 percent of companies with financial reporting and compliance programs will be found to have material weaknesses. And about 86 percent of material weaknesses will be discovered not by management or consultants but by external auditors. The consequences are real. Companies affected see more than a 4 percent drop in stock price; their CFOs face a 62 percent likelihood of being replaced; and a 150 percent plus jump in ongoing external audit fees.

As problems like these mount, CFOs are beginning to realize that an ERM-based SOX effort works much better than a controls-based SOX effort or an ad hoc approach to risk.

Part II in the Series: The 21st Century CFO and CRO: Partners in Value


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About the Author:

Steven is a recognized thought leader in ERM, CEO of LogicManager, and co-author of the RIMS Risk Maturity Model. Follow him on Twitter at @SteveMinsky