Interview with Erin Selleck, Chair of the Audit Committee and member of the Enterprise Risk Committee at Broadway Financial Corp, and it's subsidiary Broadway Federal Bank.
Having strong Enterprise Risk Management can help companies
compete, achieve strategic objectives, be ready for unexpected risks, and keep the eye on the big picture. In a recent interview I had with Erin Selleck,
independent director and advisor for public and private companies, we learned a great deal about ERM the ever-evolving role of corporate boards.
3 Core Elements of Enterprise Risk Management: What makes ERM successful and effective?
1st Element: Ensure True Integration
Enterprise risk needs to be truly enterprise-wide and comprehensive in order to be successful. Be sure to utilize an integrated portfolio concept. This means in every sense, across employees at all levels and functions. For example: In banking, this would be through all the quantitative and qualitative risk such as market, credit, strategic, cyber security, HR planning, and emerging risks. All of these risks should be managed in an integrated way, not in individual silos. This way you can see the correlations across different risks. For instance, in the financial crisis, the correlation between credit and liquidity risks.
2nd Element: Future-focused
ERM should focus on emerging risks because we are far from a static environment. Recently, there has been significant changes in the economic environment and regulatory environment, as well as the competitive environment. By embracing all of these changes with a strong ERM already in place, this will prevent unpreparedness.
3rd Element: Strategic
There is a strong link between strategic planning process and ERM, especially when new products and services are being introduced. Having solid ERM in place at the beginning of their introduction will prevent derailment. There should always be a continuous strategic component keeping in mind risk and opportunities that may present themselves. Link risk and opportunity, and ultimately promote shareholder value.
Expectation & Best Practices for Board’s Role in Best Governance & Oversight
- Role in Collaborating with Management on Risk Appetite- How much risk is the company willing to take? It is more effective when everyone is on the same page. The Board should be playing an effective role in establishing and continuously refining the risk appetite.
- Oversight of Risk Management Systems- Ask yourself: What are the risk policies? How have they been implemented? Are they effective? Are the people and the systems capable of handling risk? Do they have the right skills? Play an active role in the identification of risk, measurement, monitoring, and control of risk. Pay attention to the policy, processes and people. For the Board, spend time outside of the board room on risk management, not just inside!
- Set Tone at the Top-Hire the right CEO and ask constructive questions. Always be well informed about the risk of the company.
Techniques to Handle CRISES & Unique Challenges
No matter how vigilant you are, the unexpected WILL happen!
- How is ERM governed when the company is not in a crisis? Whatever structure is right for your company, whether it be a risk committee, audit committee, or a full board, when a crisis hits, is it the committee that handles ERM and takes the lead? Not necessarily, because each crisis is different and may involve different types of board requirements, and often many committees.
- Helpful Steps Before, During, and After A Crisis:
- Before - Have a preliminary framework for your response in place beforehand. If the unexpected event has been on your radar screen, for example a natural disaster, you can be anticipatory. Even if the crisis is unexpected and not framed, there are still lots of tools you can utilize such as communication, and key leaders.
- During - Ensure that all of the risks, not just crisis are being managed. The structure keeps everyone focused, but doesn’t take up all the bandwidth because of the crisis itself. ERM framework can help you stay on track.
- After - Learn from the crisis itself to make the program stronger in the future. Ask questions: Why didn’t you anticipate this? Did your risk control framework hold up? Are you thinking big enough when you think about risk? Now you can build a stronger ERM program going forward.
- What companies and board should consider when making decisions and facing a unique challenge.
- Be Nimble - What guiding principles do you bring to the table?
- Roles & Responsibilities Clearly Defined - For the board itself, as well as between the board and management. Management will likely lead day-by-day, but may also have an additional role, whether it be a special committee or communicating with stakeholders. Whatever roles and responsibilities are assigned, they must be extremely clear.
- Communication Plan- The key to the success of a response plan, is a communication plan which should already be on the shelf. Identify the broad strokes of how you communicate to all stakeholders: employees, community, partners, suppliers, the board and committee together, etc.
- External Resources - Do you have all the expertise you need internally? If you need outside expertise such as PR or attorneys, make sure to have them on hand!
- Beyond Tactical - Avoid distraction in the moment and keep the big picture in focus. Management may be focusing on a crisis but still remember the big picture, to avoid creating an issue. This can create a competitive advantage if done right. Shareholder value is paramount! For example financial companies had great opportunities to acquire others, which was beneficial for shareholder value. Avoid accidentally creating a long term problem down the road or other risks when trying to solve a short term problem.
Need help with your ERM program? We invite you to learn more by emailing us at Info@avivaspectrum.com.
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Prior to joining the board at Broadway Financial Corp., Erin Selleck served as Senior Executive Vice President, Treasurer, and Executive Committee member at MUFG Union Bank, a top-25 U. S. bank and a key subsidiary of Japan’s Mitsubishi UFJ Financial Group (MUFG), one of the world’s largest financial organizations. Her many accomplishments at Union Bank include successfully guiding the bank through the most significant financial crisis of the modern era, presiding over meaningful growth in the bank’s balance sheet, and expertly navigating an increasingly challenging economic and regulatory environment in the banking industry. She is the recipient of a number of professional honors, including being named a “Woman to Watch” by American Banker Magazine in 2012.