Intense global competition and rapid growth are forcing Indian firms to examine corporate enterprise risk management (ERM) elsewhere, especially in Europe, Australia and North America, where the process is more mature, concludes a report by The Conference Board.
ERM is a cohesive, enterprise-wide process allowing companies to identify, assess and respond to the social, political and economic risks of doing business. The study, sponsored by KPMG and SAP India, examines the state of risk management integration in companies based in India, and includes case studies of four major India-based multinational firms: Tata Motors Ltd., ICICI Bank, Tata Chemicals Ltd. and Dr. Reddys.
Since 2004, The Conference Board has documented steady progress to drive ERM into corporate practice and culture. Major progress is detected in early stage efforts, such as creating a risk inventory and adopting a cohesive set of assessment processes. Companies headquartered in Europe or operating in major Asia-Pacific financial markets have advanced significantly in recent years and developed processes at a fast pace, indicating an international consensus on the benefits of risk management integration. There is also evidence of substantial differences in ERM maturity across industries with financial services, energy and utilities showing more developed ERM processes than other industries.
For many Indian firms, most risks continue to be managed in silos, whether in business units or functions. Indian companies generally do not take a comprehensive approach that ERM embraces. But that is beginning to change, notes the report. Now that outsourcing has matured, it is no longer limited to single functions within specific business units, but involves entire corporate processes. As a result, risk and governance issues surrounding outsourcing practices mean they need to be addressed at the organizational level.
The report finds that Indian firms often focus on the downside risk, not the opportunity side of the equation. Part of the cultural change that ERM brings is the understanding that it can help identify opportunities, and their associated risks and rewards. ERM also creates greater transparency both internally and externally at those companies that have embraced it. Communication within the company improves by adding a new perspective on risk and sharing risk information. Communication with shareholders and other external stakeholders also improves through more thorough disclosure.
Three of the four firms examined in the report have adopted ERM in part because they have securities listed in the U.S. as well as India. Board members at those companies believe that a comprehensive approach to managing risk is one way to satisfy listing requirements across geographies.
For more information on the ERM India Report, visit www.conference-board.org.
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