Corporate Value of Enterprise Risk Management

The ultimate guide to maximizing shareholder value through ERM The first book to introduce an emerging approach synthesizing ERM and value-based management, Corporate Value of Enterprise Risk Management clarifies ERM as a strategic business management approach that enhances strategic planning and other decision-making processes. A hot topic in the wake of a series of corporate scandals as well as the financial crisis Looks at ERM as a way to deliver on the promise of balancing risk and return A practical guide for corporate Chief Risk Officers (CROs) and other business professionals seeking to successfully implement ERM ERM is here to stay. Sharing his unique insights and experiences as a recognized global thought leader in this field, author Sim Segal offers world-class guidance on how your business can successfully implement ERM to protect and increase shareholder value.

Foreword ix Preface xi Acknowledgments xix Part I: Basic ERM infrastructure Chapter 1: Introduction 3 Evolution of ERM 4 Basel Accords 4 September 11th 5 Corporate Accounting Fraud 7 Hurricane Katrina 9 Rating Agency Scrutiny 10 Financial Crisis 11 Rare Events 13 Long-Term Trends 14 Challenges to ERM 15 Summary 16 Notes 16 Chapter 2: Defining ERM 18 Definition of Risk 18 Definition of ERM 24 Summary 58 Notes 59 Chapter 3: ERM Framework 61 Value-Based ERM Framework 63 Challenges of Traditional ERM Frameworks 63 Value-Based ERM Framework 65 Overcoming the Challenges by Using a Value-Based ERM Framework 83 Summary 109 Notes 110 Part II: ERM Process Cycle Chapter 4: Risk Identification 113 Components of Risk Identification 113 Five Keys to Successful Risk Identification 114 Risk Categorization and Definition 114 Qualitative Risk Assessment 129 Emerging Risk Identification 153 Killer Risks 155 Summary 166 Notes 167 Chapter 5: Risk Quantification 168 Practical Modeling 169 Components of Risk Quantification 174 Calculate Baseline Company Value 174 Quantify Individual Risk Exposures 185 Quantify Enterprise Risk Exposure 207 Summary 223 Notes 224 Chapter 6: Risk Decision Making 226 Defining Risk Appetite and Risk Limits 227 Integrating ERM into Decision Making 239 Summary 269 Notes 270 Chapter 7: Risk Messaging 271 Internal Risk Messaging 271 External Risk Messaging 280 Summary 292 Notes 293 Part III: Risk Governance And Other Topics Chapter 8: Risk Governance 297 Focusing on Common Themes 298 Components of Risk Governance 298 Roles and Responsibilities 298 Organizational Structure 319 Policies and Procedures 325 Summary 327 Notes 327 Chapter 9: Financial Crisis Case Study 329 Summary of the Financial Crisis 330 Evaluating Bank Risk Management Practices 332 Summary 342 Notes 343 Chapter 10: ERM for Non-Corporate Entities 344 Generalizing the Value-Based ERM Approach 344 Complexities of Objectives-Based ERM 350 Examples of NCEs 351 Summary 369 Conclusion 369 Notes 369 Glossary 371 About the Author 389 Index 391