Financial crisis result of failure to embrace ERM

The financial crisis that began in 2008 resulted from a system-wide failure to embrace appropriate enterprise risk management (ERM) behaviours, said Joseph Restoule, Risk and Insurance Management Society (RIMS) president.
Restoule introduced a RIMS report, The 2008 Financial Crisis; a Wake-up Call for Enterprise Risk Management, during a conference call on Jan. 26, 2009.
The report cites the apparent failure of distressed organizations to develop and reward internal risk management competencies, as well as the failure to use ERM to inform management’s decision making for both risk-taking and risk-avoiding decisions.
Carol Fox, immediate past chair of RIMS’ ERM committee, offered steps for organizations to take in order to implement an effective risk management program. They include:
•    using models judiciously, by paying attention to the outliers or improbable events and questioning the underlying assumptions;
•    recognizing that compliance and controls are important components of ERM, but not replacements for it;
•    establishing risk tolerance levels that are expected to be breached, thereby forcing escalation in conversations at the appropriate levels;
•    rewarding risk management competencies, as well as results; and
•    advocating that ERM must be part of the organization’s culture.
ERM practices should be “accepted, expected and practiced at the highest levels all the way down through the organization if it is truly going to help make risk-adjusted decisions,” Fox said.