Some months ago I came across an article co-authored by a colleague of mine on enterprise risk management. It’s aimed at boards of directors, providing needed insight into difficulties companies have experienced implementing ERM, and puts forth principles for its effective use.
What I found particularly interesting is reference to principles outlined by “legendary management thinker” Peter F. Drucker, and the authors’ description of how those principles can be applied to ERM:
There’s no indication in the article that Peter Drucker ever spoke to ERM specifically, and to my knowledge he never did (if any readers know otherwise, please let us know). I had the great pleasure of knowing and spending some quality time with Mr. Drucker when after my stint at the Wharton School I was doing graduate work at NYU Graduate School of Business where I was fortunate to have him as a professor in an advanced management seminar. It was evident to me even then, as a still wet-behind-the-ears student, that Peter Drucker indeed was someone extraordinarily special. He had an amazing ability to identify and articulate valuable truths about business, which while obvious after he spoke them, were previously hidden from everyone else’s view.
With that said, I’d like to take the liberty of guessing what Peter Drucker, if he were still with us, might put forth as simple truths about enterprise risk management:
- Forget “risk assessments” – they have little to do with ERM
- ERM must be embedded throughout the entirety of an enterprise
- ERM isn’t done by a staff function – it must be incorporated into the soul of every manager in the company
- It must encompass clear responsibilities and accountability, with open and rapid communication up and down the organization
- And it needs to become an integral part of daily business, enhancing judgments and decision-making at every level – it’s not an add-on, but rather how business is conducted throughout the organization
Mr. Drucker, if somehow you’re listening, I hope you’re smiling at what you hear.
© Steinberg Governance Advisors, Inc. 2010. The information presented here does not constitute legal or any other type of professional advice. Companies are encouraged to consult legal counsel concerning their responsibilities for legal and regulatory compliance.