The Future of ERM

Steve Dreyer, Managing Director and Practice Leader at Standard & Poors,  speaks to whether he thinks Enterprise Risk Management is just another consultant’s fad or if it will be an enduring process and way of thinking. He states that he believes though the name may eventually fade away, the underlying concepts that make up ERM will survive through the test of time. Mr. Dreyer expects that ERM will slowly evolve with best-practices surviving the test of time. He also expects S&P to catch some heat for evaluating such a “soft” part of a company as opposed to its traditional “hard numbers” based approach to examining companies. However, he states this is an important part of their evaluations.

Key Points Discussed:

1. Evolution of ERM (Enterprise Risk Management):

   • Dreyer believes ERM will take decades to become mainstream and fully integrated into organizational behavior.
   • Initial attempts by S&P placed ERM in a siloed box within financial analysis, but the approach is now shifting toward integrating ERM across all aspects of analysis.

2. Management Scoring in S&P’s Process:

   • S&P is introducing a distinct management score to evaluate companies’ decision-making and governance.
   • This score will synthesize insights from ERM, governance reviews, accounting practices, and other areas. While subjective, it aims to provide a forward-looking assessment of management quality.

3. Challenges in ERM Adoption:

   • Many organizations and their boards have been slow to embrace ERM principles fully.
   • Boards often avoid holding management to high accountability levels, fearing it reflects poorly on their own decisions.
   • Dreyer emphasizes the need for ERM to influence decision-making at all organizational levels, promoting accountability and better risk management.

4. Future of ERM:

   • Dreyer is optimistic about the principles of ERM enduring but notes the term itself (“ERM”) may not survive due to associations with consultancy and hype.
   • Emerging technologies and data tools are making ERM more accessible, even for smaller organizations.

5. Potential Pitfalls and Trends:

   • While ERM has faced skepticism as a “consultant-driven fad,” Dreyer believes the fundamental concepts are strong enough to persist and evolve.
   • Positive trends, such as enhanced data availability and risk monitoring tools, will likely drive adoption.

6. Long-Term Vision:

   • Dreyer envisions ERM becoming second nature across organizations, seamlessly integrated into daily behaviors and strategic decisions.
   • He emphasizes the importance of proactive decision-making and risk assessment in building resilience and ensuring sustainability.

Closing Remarks:

Hancock highlights the NC State ERM Initiative’s online resources, which provide valuable insights into S&P’s use of ERM in its rating processes. She encourages viewers to explore these tools for deeper learning.

This interview sheds light on the challenges, opportunities, and future trajectory of ERM, emphasizing its potential to become a critical aspect of organizational management and risk assessment.

Original Article Source:  “Transcript of Interview with Steve Dreyer on the Future of ERM“, Steve Dreyer and Bonnie Hancock, October 2012