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Standard and Poors (S&P) has announced they are incorporating Enterprise Risk Management (ERM) into their credit analysis; therefore, risk management practices may impact credit ratings. S&P will use a phased approach to implementation with ERM discussions starting in the third quarter of 2008. S&P will include ERM commentary in their fourth quarter reports. Formal scoring taking into consideration the ERM criteria is projected for 2009.

What is ERM? S&P defines ERM as:

• A culture of reviewing and addressing all risks
• Clearly defined expectations and risk tolerances
• Methodology for avoiding risks
• Shift in focus from cost/benefit to risk/rewards
• Fulfillment of company board’s and senior management responsibility
• Tool for trimming excess risks
• Establishment of a common risk language

RubinBrown Point of View:

Stakeholders continue to demand increased transparency and an understanding of an organization’s risk profile. Organizations need to increase their focus on risk management due to the accelerated pace of market change and increased regulation. Successful organizations need to be more forward thinking and S&Ps ERM reviews will encourage them to increase their level of risk management practices. We believe a strong risk management culture leads to a more effective and efficient business – a value driven organization. In order to prepare for S&Ps ERM reviews, organizations should review S&Ps ERM rating scale and assess their current state of risk management. Many organizations have not formalized risk management as it continues to be an isolated exercise performed by various groups within the organization, with no clear plan for addressing and managing the risks. To be successful, risk management must be imbedded in the organization’s culture and driven throughout the organization. There are many opportunities to evolve risk management practices to ensure decisions reflect the impact of risks on the company. This emphasis on ERM by S&P, provides organizations the opportunity to take risk management to the next level.

Click here to download a copy of the S&P press release announcing the incorporation of ERM inot their credit analysis.

Join us on September 18 for 
Managing What You Can't See ... RISK!

Featuring S&P Managing Director, Steve Dreyer, and AmerenUE Risk Manager, Glenn Thebeau, we will discuss today’s emerging need for ERM and how you can successfully respond to change.

Click here for more information or to register for this free seminar!

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