Aon recently presented preliminary findings of a survey that reveals most CFOs have concerns about whether their risk management strategies support their companies’ business objectives.
Conducted by CFO Research Services last Fall, the Aon-sponsored survey shows that many senior financial executives at multinational companies–more than 20 percent–responded that they were “very” or “somewhat dissatisfied” that their risk management practices met their companies’ objectives, and 30 percent were only “somewhat satisfied.” Three out of four favored broader involvement of Board audit committees.
At the heart of the concern is the widespread practice of managing risks within business units rather than across the enterprise. “The results of the study indicate that CFOs recognize that managing risks within independent business units may not adequately protect the company as a whole from threats to overall strategic objectives,” said Dennis Mahoney, chairman and CEO, Aon Limited UK.
“That’s why even before September 11th, many companies were turning to fully-integrated enterprise risk management (ERM) rather than managing risks business unit by business unit,” he said.
“The silo approach is fast losing appeal,” Mahoney said. “Nearly 40 percent of the multinationals in our survey say they expect to have a fully integrated risk management program in place within the next three years. By contrast, only 12 percent say they will be managing risks by each individual unit.”
According to Mahoney, the appeal of ERM is heightened by its ability to produce real business advantages. For example, nearly half of the respondents to the survey believe that strategic risk management can improve capital management.
“Recent events have reminded CFOs of a grim truth — threats to business can come from any direction,” added Mahoney.
This truth — coupled with the growing complexity of today’s business — may be the reason 73 percent of the CFOs surveyed want greater involvement of audit committees in aligning risk management with corporate goals. Mahoney cautions, however, that corporate governance experts believe that audit committees may be overextended.
Mahoney said that most experts agree that audit committees have to be anticipatory and need to have open communication with management. At the same time, they have to guard against the kind of over-zealousness that implies the best way to deal with risk is to avoid it altogether.
Mahoney presented the preliminary results of the survey during a presentation this morning at the 2002 World Insurance Forum in Bermuda.
The final report will be available online at www.aon.com in late March.