Comment on Value Creation and Value Destruction by Enterprise Risk Management.

Value creation and value destruction by Enterprise Risk Management: The significance of Enterprise Risk Management (ERM) can be seen in the value it creates when effectively implemented and the value it destroys when there are shortcomings in leadership and implementation. Value creation: ERM is a critical component of value creation. To create value successfully, ERM must play a central role in every substantive business decision. Effective ERM can enable a company to manage potential future events that create uncertainty and respond to uncertainty in a manner that reduces the likelihood of downside surprises. ERM can also help a company improve the quality of risk taking and thereby, give the company a competitive advantage. Avoiding value destruction: A company cannot preserve its value if its ERM is below standard. This role of preserving corporate value is far more visible when ERM fails than when it succeeds. Failures in risk management have contributed to some of the most significant scandals and losses suffered by companies. Recent significant failures include environmental disasters (e.g., BP), financial fraud (e.g., Enron, WorldCom, Satyam), foreign bribery (e.g., Siemens) and massive trading losses (e.g., JP Morgan). According to the OECD, these risk management failures were often "facilitated by corporate governance failures, where boards did not fully appreciate the risks that the companies were taking (if they were not engaging in reckless risk-taking themselves), and /or deficient risk management systems.