SAS Attends ERM Conference in Austin
Buy in From Top Management Critical to an Effective Risk Strategy
By Eric Carriere, SAS Canada
On the 24th and 25th of January, I had the privilege to attend the EUCI Enterprise-Wide Risk Management Conference in Austin, Texas. Executives, who largely represented the energy and power utility market, all came together to discuss theories and trends in ERM. All presenters and attendees were very candid as to how sophisticated their particular company was in the area of risk. The levels of sophistication ran the gamut as some companies had little or no risk management policies in place, while others had built wide ranging models to measure risk and are now in the evaluative stage to determine the effectiveness of their policies. Most companies landed somewhere in the middle with risk controls in certain departments, but with no integration among risk silos.
Regulatory and compliance issues seemed to be of great focus since risks surrounding these areas are much harder to quantify than market risk and credit risk measures. Only a couple years ago, you would have expected topics about Sarbanes-Oxley to dominate the discussion (which is still a large part), but now environmental regulations are at the forefront. Carbon markets have already developed in Europe and the assumption is that the market will develop in some form in North America at some point in time.
Even though the speakers’ topics varied in the areas of risk management, one common requirement in every presentation was the necessity for support from top management. No matter how efficient your policies are, the number one factor to being able to implement risk controls in a firm is buy-in from upper executives and the board of directors. Even after the high profile debacles at Enron and Amaranth, the risk profession still has the challenge of proving it’s a value added part of an organization rather than merely an expense.
It was fitting that while talking about how to justify the investment needed to implement a risk management system in an organization, Societe General in Paris announced it had lost seven billion dollars because of one rogue trader. They did not have adequate controls in place to prevent this event from happening. It’s a great example of how the cost of implementing proper risk management is minute when compared to what the consequences are of not having proper risk controls in place.