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Different approaches for different markets

Different approaches for different markets

The thorny issue of why risk managers in the United States seem to still struggle to achieve enterprise-wide risk management within their organizations rose its head again at the Risk & Insurance Management Society Inc.'s 2007 Annual Conference and Exhibition held in New Orleans last week.

John Hampton, KPMG professor of business, specializing in enterprise risk management, discussed the perceived problem with Business Insurance Europe during the conference.

Mr. Hampton has championed the enterprise-wide cause for years and confirmed that many U.S. risk managers remain frustrated about their inability to convince the so-called C-Suite board managers of the needs for a more holistic approach to risk.

He also confirmed what many readers of BIE have expressed of late—the perception that enterprise-wide risk management appears to be more advanced in Europe than it is in the United States.

But is the risk management profession really that different in the United States to Europe? Is it possible to say that one community is more sophisticated than the other and crucially what can they learn from each other?

The first point to remember when discussing this recurring pan-Atlantic debate is that there are far more similarities between risk management on both sides of the pond than differences.

All risk managers, regardless of where they are based and what their employer does, have the core goal of corporate asset protection.

To protect the crown jewels, risk managers identify the key risks, measure them, manage them and then work out what and how much can and should be transferred, depending upon the risk appetite of the corporation.

Also, the underlying risks faced by risk managers are the same.

Risk managers in Europe and the United States face the same basic insurable property and liability risks and wider business risks such as supply chain, business continuity,

reputational risk and the like.

The fundamentals are, therefore, not that different, the wrinkles really begin to emerge when you consider the wider social, economic, political, legal and even cultural differences between the United States and Europe.

I would suggest that there are three main factors in this regard.

First, there is the legal system.

U.S. risk managers need to spend much more time worrying about being sued because of the litigious U.S. system and, therefore, tactical, defensive liability strategies are much more important than in Europe.

Second, there is business culture.

U.S. risk managers do not have to worry too much about cross-state cultural differences. Europeans have always had to worry about cross-border differences in language, business culture and ethics and the like and have a longer tradition of working outside of Europe in other continents such as Africa and Asia too.

European business has always had to spend more time worrying about cross-border integration and supply issues that demand a bigger picture approach.

Third there is regulation.

The United States has a much more rules-based approach to regulation than Europe, which generally prefers a looser, principles approach.

Virtually all Europeans moan about the volume of new rules that emanate from the European Commission. But the reality is that most of the directives are top-level "directions," not detailed lists of tick boxes.

For these big environmental reasons, it is, therefore, arguable that U.S. risk managers will, inevitably, have to take a more tactical, tick-box approach to risk management, just as European risk managers have to take a more strategic approach.

Thus U.S. risk managers should probably not beat themselves up too much if they are not as far ahead with enterprise-wide risk management as their colleagues in Europe who are possibly more sophisticated, simply because they have to be.

It follows from this that, if U.S. risk managers, really want to catch up with their European counterparts, then they will need some help from their judiciary, the Securities and Exchange Commission and Capitol Hill and that is a big task.