Ready or Not, Here They Come
February 5, 2009 1 Comment
This year more companies will be subjected to an Enterprise Risk Management (“ERM”) review by credit rating agencies such as Standard & Poor’s as a result of newly implemented credit rating methodologies. The lack of a solid ERM program could translate into higher credit costs for those companies who have not embraced the discipline. Here’s some guidance from a recent article in The Metropolitan Corporate Counsel.
Steps To Prepare For S&P’s Risk Discussion
The following are some steps that nonfinancial companies should consider to better prepare for discussions with S&P analysts:
- Form an interdisciplinary ERM credit team to roll up risk-assessment data on the organization’s risk-management culture and strategy from across the enterprise, and analyze the impact of the data on the creditworthiness of the enterprise.
- Leverage ERM-type analyses already implemented, for example, Sarbanes-Oxley financial-control risk analysis and compliance risk assessment.
- Evaluate the current state of the risk-management culture.
- Demonstrate how ERM affects strategic planning. S&P has listed several strategic processes affected by risk and risk-management analysis, including capital budgeting, strategic asset allocation, acquisitions and divestitures, performance management, and incentive compensation.
ERM Benefits Beyond Enhanced Credit Rating
Finally, a robust ERM process will yield benefits far beyond credit-rating enhancement. An effective ERM process will:
- reduce operational and compliance surprises by providing early warning of impending corporate threats;
- enable companies to identify and correct control deficiencies, thereby permitting process improvements, before they result in operational failures or are discovered by regulators;
- enable the reduction of penalties and fines in the event of a compliance failure through self-reporting and restitution;
- improve the decision-making process through greater awareness of risks and mitigating strategies;
- and improve capital allocation across business units because risk information will facilitate weighing expected returns against the risks inherent in undertaking a business opportunity.
Is your company ready? If not, Wheelhouse Advisors can help with cost-effective solutions. Visit www.WheelhouseAdvisors.com to learn more.