Top down and bottom up approach is needed to ensure boards grasp ERM–Asia

Some say interest in risk management at board level is on the up, but there seems a long way to go before it is widely understood and utilised. Explaining ERM’s value is a big issue for risk managers, they agree. Direct and effective communication with top management and directors is crucial. But if reporting lines and organisational culture do not allow this to take place, building buy in from the bottom up is the way forward, they say. According to Steve Tunstall, Director of consulting firm Tunstall Associates and board member/General Secretary of Parima, the Pan Asian Risk and Insurance Management Association, boards’ understanding of ERM in Asia is partial and a ‘very mixed picture’.hide“I think it would be fair to say Singapore and Hong Kong are the most developed in this area. There are a lot of other big companies around the region in pockets that really get it, but for a number of large companies risk management is not firmly on the CEO’s or board’s radar,” he said. Franck Baron, Group General Manager, Risk Management and Insurance, International SOS and Chairman of Parima agreed. “There are many boards that do not fully understand the merits of risk management but there are exceptions,” he said. “There are some leading companies that understand it but for the vast majority risk management is not on the radar yet.” Bob Sweeney, Vice President, Risk Management at DFS Group Ltd and Parima board member based in Hong Kong, believes that many boards don’t understand the value of risk management, let alone ERM. Risk management is seen merely as a transactional function within many companies, focused principally on achieving the lowest cost, he said. “That mindset doesn’t lend itself to addressing risk tactically or strategically, which may require additional funding.” Patrick Abdullah, Vice President, Enterprise Risk Management at Astro Overseas Ltd and Parima board member overseeing its Malaysian chapter, explained that few boards are appreciative of ERM because they have not seen it in action. “Such boards may treat the process as a ‘need to do paper exercise’ and may not be committed to the initiative. Lack of exposure to board members makes the process a lot more difficult to introduce,” he explained. This lack of board understanding echoes what we have been told by many participants of our Global Risk Frontiers Survey from around the world. “I don’t think that boards in Asia really know and understand the value of risk management,” said Danny Lin, Associated Vice Present, Risk Management and Auditing Office at Qisda Corporation and Parima board member in charge of its Taiwan chapter. “What they care about is business continuity management, crisis management and the operational side of risk but not, I would say, the potential of true ERM.” Roland Teo, Deputy Director of the risk management office at a Singapore regional healthcare system, board member of Parima and governing council member of the Risk and Insurance Management Association of Singapore (Rimas), said understanding depends on the board’s orientation and background. But in his opinion they generally don’t understand the value offered by risk management other than from a compliance perspective. Keith Xia, Regional Head of Risk Management for Intercontinental Hotel Group and Parima board member in charge of its Chinese chapter, agreed with fellow Asian participants that boards lack understanding of ERM. But in China at least demand for risk management from top management is growing, he said. He explained that over ten years ago the Chinese central government introduced an instruction to its largest companies requiring them to set up an ERM programme. Chinese companies are developing a global footprint and realise that they need to change their approach to succeed abroad, he added. “This is boosting demand for risk management services…There are many risk management positions now open in the market, even at the local Chinese companies,” he explained. So there is broad agreement that despite pockets of interest in ERM its true value is not fully understood at board level in Asia. The question therefore facing risk managers is how to promote the discipline and explain its real benefits. Participants of the Asian leg of our Global Risk Frontiers Survey suggest that obtaining buy in by aligning risk management with issues of interest to the board is crucial. According to Mr Lin: “Risk management empowerment from boards and top management is the key factor in successful risk management. You must seize the opportunity to explain what you are doing to the board and often this depends on good timing and delivering something when it is most needed.” This demands strong communication skills, he said. “If you want to make the risk management function crucial within companies you as the risk manager have to speak the language that the board can understand. More importantly you need to not only speak a language they can understand, but it is your responsibility to let your boss know the true value of your role. By any chance or circumstances I have to provide a message and information to let the board know about risk and its management.” For this to occur Geetha Kanagasingam, Vice President, Group Risk at Barclays Plc and board member/Treasurer of Parima, believes direct reporting lines to top management and board members are needed. “Otherwise how do you communicate and prove the value of risk management?” she said. “It is important to gain the support from the top. I mean real support that recognises the value of risk management and the importance it plays in the overall business strategy of the organisation,” she added. However, in cases where such interest and reporting does not exist the majority of Asian risk managers believe that the only real option is to build support from the bottom up. Once a risk culture permeates an organisation, boards will eventually have to sit up and take notice, they say. “If you are not being heard by the board you need to start at a basic level and build influence from the bottom,” said Juliette Gelpi, Group Insurance Risk Manager, Asia Pacific at Schneider Electric and Parima board member. Mr Tunstall continued on the same theme. “If the risk manager is comparatively insignificant in the organisation then it is difficult to work out how to get the CEO or C-suite to recognise our value and start the virtuous circle. For many companies in Asia this is not something that is established,” he said. “In terms of dealing with companies that don’t have that structure or education it becomes a case of what comes first, the chicken or the egg,” he added. Mr Baron said that direct board reporting is desirable but building support from the bottom up is an alternative approach. “I really encourage people to find an influence somewhere, perhaps at a lower level, and build credibility by saying I did this or achieved that. Then you build up your credibility slowly across your organisation. I would say to any Parima member coming to me and wanting to expand their influence and credibility that you need the right communication and networking across your organisation. Find out who can support you and communicate success and build from there. That for me is the way to gain influence, in addition to reporting,” he said. Ms Kanagasingam agreed that the bottom up approach is worthwhile, but insufficient to get full buy in from the board. “Don’t get me wrong, I agree with this approach in theory. But I find it hard to believe that in an organisation where the risk manager is appreciated on that higher level he or she has no direct reporting to the board,” she said. Mr Teo waded into the debate by saying that an organisation and its board needs to be receptive to risk management in order to understand its true value. But it also relies on risk managers picking the right issues with which to grab their attention, he added. “To explain risk management value you need to know what the board wants and hit the right buttons. You need to recognise that different boards and organisations have different needs. So as a risk manager we really need to find out what they want. It may not be via an ERM approach that you grab their attention. We may need to start with operational risk and help them with communication, crisis management or financial risk management. Of course, the company needs to be receptive to the idea of risk management but you need to find the sweet spot,” he said. “It is important to find allies within the business to help us show our worth to the board. It is really about stakeholder management,” he added. Mr Xia agreed that risk management is about a top down and bottom up approach. “Changing attitudes towards risk management takes time, but as long as you clearly understand the role and talk with relevant stakeholders you will achieve,” he said. Thu Xuan Ly, Director of Risk & Compliance at Vina Capital and board member of Parima in charge of its Vietnam chapter, believes it all comes down to whether boards are willing to take risk management on board. “If they learn, that’s excellent otherwise it’s difficult to deploy a good risk culture from the top down and of course that could lead to consequences in the future,” she said.

Top down and bottom up approach is needed to ensure boards grasp ERM–Asia

Want to read this article?

Read Next

Marsh extends Cyber ECHO facility to $125m of excess capacity

Beazley grows premiums 7% in Q1 as overall rates flatten

Ferma members told AI will bring risk and reward for corporate insurance buyers

Warmer climate spreading risk of malaria and dengue to new regions

UN launches new net-zero insurance forum to replace NZIA

Marsh extends Cyber ECHO facility to $125m of excess capacity

Beazley grows premiums 7% in Q1 as overall rates flatten

Ferma members told AI will bring risk and reward for corporate insurance buyers

Warmer climate spreading risk of malaria and dengue to new regions

UN launches new net-zero insurance forum to replace NZIA

Want to read this article?

Read Next

Marsh extends Cyber ECHO facility to $125m of excess capacity

Beazley grows premiums 7% in Q1 as overall rates flatten

Ferma members told AI will bring risk and reward for corporate insurance buyers

Warmer climate spreading risk of malaria and dengue to new regions

UN launches new net-zero insurance forum to replace NZIA

Related Articles