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March 09, 2012 at 11:11 AM EST
Harvard Business Review Survey: Risk Management in a Time of Global Uncertainty Demands Proactive Approach

Global companies are intensifying their focus on enterprise-wide risk management (ERM) in the wake of the 2008 financial crisis and recession, but most executives feel their companies have a long way to go in building an effective, risk aware culture, according to a new survey by Harvard Business Review Analytic Services.

Over two-thirds of 1,419 business executives surveyed in the new research sponsored by Zurich said risk management has increased in importance over the past three years. Yet only one in ten said their executive management is “highly effective” in creating a strong risk-management culture.

And while the need to link risk information to strategic decision making was identified as extremely important, only 14% felt their organization did that extremely well. Among the top barriers to better risk management cited:

  • Over-focusing on compliance rather than fundamental processes (42%)
  • Lack of strong management support (41%)
  • Reluctance to de-silo related information (35%)

A majority of the companies said their approach to enterprise risk management continues to be basic or reactive. However, about 40% of executives surveyed considered their approach to ERM to be “proactive,” involving the board as well as business and functional leaders at all levels of the organization.

This “best practice” group included financial services, health care, and energy companies and those with 10,000-plus employees. But many other industries have instituted ERM processes or improved their practices.

Executives in companies taking the proactive approach said that integrating risk management and corporate goals was key to gaining competitive advantage.

The study made clear that risk management needs to have a clear owner to be effective— executives reported that Chief Risk Officers are far more likely to oversee risk management now, than three years ago, although the CEO bears ultimate responsibility.

The study also found that at companies with strong ERM processes, “ownership” of risk stays in the hands of business and functional leaders. The CRO’s role is to advise and assist them, staying in regular communication and providing them with resources to better manage risk themselves. The result is what executives interviewed for the study call a “collaborative culture” that integrates risk awareness into the company’s strategic planning.

“Ownership of risk cannot be overstated, since the survey indicated that companies that employ a Chief Risk Officer, who works in tandem with the CEO and their executive leadership, scored highest in proactively managing risk in the organization,” said Alex Clemente, managing director of Harvard Business Review Analytic Services.

Some of the top benefits of ERM that respondents cited were not directly related to risk management. Instead, respondents described the integrated risk management approach as helping their companies achieve better operational performance by removing siloed communication and by fostering:

  • Improved strategic decision making (39%)
  • Improved governance (34%)
  • Increased management accountability (31%)

Executives in the survey stressed that their goal was not to create a risk-averse environment but one in which better measurement and understanding of risk gives them more confidence about making strategic decisions to build the business.

“There is no doubt that in today's challenging environment customers, shareholders and employees expect clear commitment to comprehensive and forward looking risk management from top management and board. Supporting the findings of the survey that it is extremely important to link risk information to strategic decision making, 41% of the companies said they are deepening and extending the ties between risk management and strategic planning,” said Axel Lehmann, Chief Risk Officer at Zurich.

To access a copy of the Risk Management in a Time of Global Uncertainty report, please visit: www.hbr.org/white-paper/risk-management.

About Zurich

Zurich Financial Services Group (Zurich) is a leading multi-line insurance provider with a global network of subsidiaries and offices in Europe, North America, Latin America, Asia-Pacific and the Middle East as well as other markets. It offers a wide range of general insurance and life insurance products and services for individuals, small businesses, mid-sized and large companies as well as multinational corporations. Zurich employs about 60,000 people serving customers in more than 170 countries. Founded in 1872, the Group is headquartered in Zurich, Switzerland. Zurich Financial Services Ltd (ZURN) is listed on the SIX Swiss Exchange and has a level I American Depositary Receipt program (ZFSVY), which is traded over-the-counter on OTCQX. Further information about Zurich is available at www.zurich.com.

About Harvard Business Review Analytic Services

Harvard Business Review Analytic Services is an independent sponsored research unit within Harvard Business Review Group, which conducts research and comparative analysis on management challenges and emerging business opportunities. HBR Analytic Services has been recognized for its “Face-to-Face” research report, sponsored by British Airways, as a finalist in the 2010 M&M Awards in the category of “Best Contribution to a Media Campaign by a Media Owner.” Research from Harvard Business Review Analytic Services has appeared in The New York Times, Economist.com, USA Today, the Times of London, and other major media.

About Harvard Business Review

Harvard Business Review is the leading destination for smart management thinking. Through its flagship magazine, 10 translated licensed editions, books from Harvard Business Review Press, and digital content and tools published on www.hbr.org, Harvard Business Review provides professionals the world over with rigorous insights and best practices to lead themselves and their organizations more effectively and to make a positive impact in a changing world.

Contacts:

Harvard Business Review
Laura Moran, 617-783-7582
lmoran@hbr.org
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