The ERM Process at Xerium Technologies Part 1

Synopsis:

Bonnie Hancock speaks with Fred Caloggero, VP of Audit Services at Xerium Technology, about the ERM process that he helps lead at the company. Many companies look at risk on a two scale plane, considering likelihood and impact; however, Xerium adds in the aspect of velocity – the speed of which a risk can be onset at a company. By looking at things like Key Performance Indicators and Key Risk Indicators, a company can be more aware of the velocities of various risks.

Mr. Caloggero also speaks of some of the difficulties that exist in starting an ERM process, which include assigning risks to individuals and the sheer volume of data that is produced during this time. How he handled these issues is addressed with this interview along with how he keeps updated on the risks assigned to certain people.

Key Points Discussed:

1. Introduction to ERM at Xerium Technologies

   • ERM (Enterprise Risk Management) was initially perceived as a bureaucratic compliance exercise, akin to Sarbanes-Oxley (Sar-Ox) requirements.
   • Instead, it shifted the company culture from reactive “firefighting” to proactive, forward-looking risk planning and mitigation.
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2. Role of ERM in Bankruptcy and Reorganization

   • Xerium leveraged ERM to navigate a complex bankruptcy process.
   • The CEO utilized an event tree developed through ERM as a roadmap, outlining priorities like maintaining customer relationships, market share, NYSE listing, and shareholder value.
   • ERM provided a structured framework to address and mitigate potential risks during the reorganization.
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3. Benefits of ERM in the Bankruptcy Context

   • The framework, established two years before bankruptcy, helped Xerium avoid critical issues and make strategic decisions.
   • It ensured focus on preserving key aspects like client relationships and shareholder interests while avoiding pitfalls like fresh start accounting.
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4. ERM Implementation and Risk Identification

   • Initially, Xerium’s risk identification involved discussions among top executives (CEO, CFO, and Caloggero) to create a list of about 15 risks, later refined with input from the board.
   • Over time, the process evolved into a web-based, annual questionnaire involving multiple management levels. Risks were reviewed, ranked, and reassessed yearly, with flexibility to add new risks or remove mitigated ones.
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5. Advice for Starting ERM

   • Caloggero emphasized beginning with small groups and fewer risks to avoid administrative overwhelm.
   • He recommended interviews and group discussions for initial risk identification over web-based tools, as they provide richer insights and are easier to manage at the start.

Conclusion:

ERM at Xerium Technologies transformed the company’s approach to risk management, enabling it to anticipate and mitigate risks effectively, particularly during critical periods like bankruptcy. Starting small and gradually scaling the ERM process proved to be an effective strategy for long-term success.

Original Article Source:  “Transcript of Interview with Fred Caloggero on the ERM Process at Xerium Technologies Part 1-2“, Fred Caloggero and Bonnie Hancock, November 2011