At the recent annual conference of the Federation of Asian, Pacific & African Risk Management Organizations in Singapore, John J. Hampton, left, talked with George Niwa, right, risk manager at Panasonic in Japan. Mr. Niwa spoke at the FAPARMO conference on the subject of "Panasonic's Commitment to Business Risk Management." In this interview, Mr. Niwa discusses Mr. Hampton's Sept. 4 Business Insurance column on enterprise risk management.

Hampton: The Sept. 4 article argued that enterprise risk management has been slow to gain traction because people are reluctant to change or they perceive too much complexity in an ERM process. Was this your experience implementing business risk management at Panasonic?

Niwa: No. We at Matsushita Group have a very solid "business basic philosophy" well understood by all employees since the foundation of the company. It is "A company is a public entity." We believe that our mission as a manufacturer is to contribute to society through our business activities while fulfilling social responsibilities as a public entity. Before the introduction of enterprise risk management, we already had practices to eliminate or reduce factors that impede the accomplishment of business goals. Our top management, including the CEO and CFO, clearly declared that Matsushita will establish an enterprisewide internal control and risk management system based on the Council of Sponsoring Organizations report. This helped everyone throughout the organization to understand the importance of the message.

Hampton: The column also encourages risk managers to "tell a story" to increase the value of the ERM message. Did you find that stories helped people understand the management of risk across the enterprise?

Niwa: Yes. We strongly encourage directors of each domain (internal and external division companies) to provide case studies when speaking on risk management. Major risks have great possibilities to effect on business operation across the enterprise. It makes a great difference for our staff to understand risk management when we draw a risk scenario. We call our risk management process "value chain risk management." Drawing a risk scenario at each domain is requested at every annual assessment.

Hampton: Can you share one of the stories?

Niwa: Suppose we talk about the risk of a selling price being improper for the market as a result of a cost increase. When we apply this scenario to our value chain flow, it will identify possible causes such as soaring material prices from suppliers, deteriorating yields in production, increasing transportation costs due to surging oil prices, etc. Each factor rarely exists independently but is often attributable to other causes. In this case, it is important to carefully review which factor has the most substantial impact or is the fundamental cause.

Hampton: Your presentation at FAPARMO referred to a corporatewide risk management committee. You also said risk assessments are not presently linked to business management across the entity. In a $73 billion revenue company such as Panasonic, is it just too big a task to implement real ERM?

Niwa: There is no business management without risk management. Although it has not been called "risk management," at Matsushita we have our own method to assess and manage risks. The most important thing is to build risk management practices into our organizational culture and apply them consistently throughout the enterprise. It also means bringing risk management up to the level where top management understands risks when making decisions. At the moment, we are working on implementing more solid risk management practice in our domains. This can only be done with a strong support by top management and the finance and strategy departments.

Hampton: We are always curious to learn whether ERM is supported by a "champion" in senior management. Did you have such a champion when you started the risk management process?

Niwa: Yes. We were fortunate to have an executive in charge of risk management and legal affairs. It was also important that both the CFO and chief strategy officer had a good understanding on operational risks. Our implementation of the risk management practice would never have been so successful without major support from these three executives.

Hampton: Any final observations?

Niwa: ERM--we call it global and group risk management. For us, the goal is to free ourselves from a traditional management style. Instead of managing our risks by each function in a silo, we organize each function as a flow-with-risk point of view. We are working on visualizing risks so all members can see them at the same level. It takes time to change the traditional system that everyone understands. Slowly but surely, it is something that has to be done.

John J. Hampton's columns on Emerging Risk Strategies appear in Business Insurance. An archive of his columns as well as interviews and discussions with risk management and insurance industry leaders can be found at www.BusinessInsurance.com/EmergingRiskStrategies. To post questions or comments about the issues raised in Emerging Risk Strategies, please visit BI's Community Forums at www.BusinessInsurance.com.