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Enterprise risk management has place in board room

Enterprise risk management has place in board room

CHICAGO—Clearly defined expectations and responsibilities among an organization's stakeholders, board of directors and management are essential for the management of risks and opportunities, according to a speaker at the fifth annual Enterprise Risk Management Conference in Chicago.

Problems often exist between the self interests of those three principal agents within an organization, said Kenneth Ledger, vp of enterprise risk management at Calgary, Alberta-based Pason Systems Corp., at the conference Tuesday.

“The board of directors…needs to be an independent party. They're there to balance what management's self-interests are with the self-interest of the stakeholder,” Mr. Ledger said during a session.

Management personnel such as CEOs are typically around for only three to six years and do not have a long-term view of risk, Mr. Ledger said, so the board of directors needs to take an interest in how risks are being managed with a long-term view.

However, the board still needs to maintain its independence, he said. “The minute they start to manage the risk and make risk decisions, their independence is lost, they now have skin in the game,” which can impact their role as the balancing perspective among stakeholders and management, Mr. Ledger said.

While the board of directors often seeks to understand the organization's risk appetite, risk tolerance and total risk in business, they often are inexperienced with risk management—something risk managers should expect, he said.

“They don't really know much about risk,” Mr. Ledger said. “We're the experience, we're the knowledge, we've been around doing this for five, six years in an intense ERM role.”

The board of directors should be asking risk managers questions about the organization's risks and, in turn, provide risk managers with a balanced view of what stakeholders expect.

Risk managers also need to understand what type of reporting would help the board of directors gain comfort in the effectiveness of the risk program, Mr. Ledger said.

“Keep the risks relevant to the board,” he said, noting that there are hundreds of risks within an organization, and boards of directors are concerned with risks that may change the business or significantly impact stakeholder perception of the company.

The conference was produced by the Marcus Evans Group.

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