Enterprise Risk Management Is a Culture, Not a Project

How can CUs leverage risk to improve their financial returns?

August 23, 2012

Enterprise risk management (ERM) has received a lot of attention in the wake of the economic crisis, and for good reason. It was, after all, unanticipated risks, ignorance, and their impact that shut the doors of many organizations in our industry.

Yet most of us hear about the concept and immediately try to size up our organizations’ current risk capabilities. Only in the case of substantial problems or regulatory pressure do we think about undertaking ERM, proclaiming our existing risk activities as effective.

I would agree. Credit unions predominately have very good risk processes.

Unfortunately, credit unions are asking the wrong questions when it comes to ERM. The questions should be:

  • What will drive tomorrow’s success?
  • How does the credit union enhance its competitive position?
  • What things can we not afford to have happen to us—and how will we respond when they do?
  • How do we leverage the risks we take to improve our financial returns?

These are the real questions ERM seeks to answer.

ERM is a set of systematic processes designed to create a culture of proactive identification, measurement, and management of risks to help credit unions seize opportunities and adjust to negative events.

You can’t manage what you can’t see. And I guarantee you can’t see everything from the “corner” office.

Sustained organizational success is built on the alignment and execution of its parts and, as such, is only as good as its collective ability to make consistently good decisions across the entire organization.

To create such a culture, the organization will need to:

1. Garner the expertise and knowledge around a practical ERM methodology. Considerable attention must be focused on educating the stakeholders to look at their jobs and the environment in a new way.

While organizational processes must be put into place, the real long-term value of your ERM effort comes from this investment in organizational knowledge. Stakeholders must include key staff, all managers, and the board of directors.

This allows ERM to become part of the fabric of the organization—and not a separate set of expectations.

2. Instill an expectation of transparency and robust dialog centered on the business and potential risks, problems, and opportunities.

Closed organizations have a lack of information flow, functional silos, and limited growth opportunities. It’s only through a robust dialog of the issues that potential problems are unearthed and/or new opportunities are identified.

Finally and most importantly, the board and management team must demonstrate their commitment to ERM through their own actions. They must establish expectations and accountability; provide the necessary resources; and, most importantly, leverage the ERM program in its decision processes.

Real ERM is a cultural competency that all credit unions must create to continue to succeed in the future. It’s your choice as to what you get out of it.

TONY FERRIS is managing partner for The Rochdale Group Inc.