Enterprise Risk Management Is a Culture, Not a Project

How can CUs leverage risk to improve their financial returns?

August 23, 2012
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Enterprise risk management (ERM) has received a lot of attention in the wake of the economic crisis, and for good reason. It was, after all, unanticipated risks, ignorance, and their impact that shut the doors of many organizations in our industry.

Yet most of us hear about the concept and immediately try to size up our organizations’ current risk capabilities. Only in the case of substantial problems or regulatory pressure do we think about undertaking ERM, proclaiming our existing risk activities as effective.

I would agree. Credit unions predominately have very good risk processes.

Unfortunately, credit unions are asking the wrong questions when it comes to ERM. The questions should be:

  • What will drive tomorrow’s success?
  • How does the credit union enhance its competitive position?
  • What things can we not afford to have happen to us—and how will we respond when they do?
  • How do we leverage the risks we take to improve our financial returns?

These are the real questions ERM seeks to answer.

ERM is a set of systematic processes designed to create a culture of proactive identification, measurement, and management of risks to help credit unions seize opportunities and adjust to negative events.

You can’t manage what you can’t see. And I guarantee you can’t see everything from the “corner” office.

Sustained organizational success is built on the alignment and execution of its parts and, as such, is only as good as its collective ability to make consistently good decisions across the entire organization.

To create such a culture, the organization will need to:

1. Garner the expertise and knowledge around a practical ERM methodology. Considerable attention must be focused on educating the stakeholders to look at their jobs and the environment in a new way.

While organizational processes must be put into place, the real long-term value of your ERM effort comes from this investment in organizational knowledge. Stakeholders must include key staff, all managers, and the board of directors.

This allows ERM to become part of the fabric of the organization—and not a separate set of expectations.

2. Instill an expectation of transparency and robust dialog centered on the business and potential risks, problems, and opportunities.

Closed organizations have a lack of information flow, functional silos, and limited growth opportunities. It’s only through a robust dialog of the issues that potential problems are unearthed and/or new opportunities are identified.

Finally and most importantly, the board and management team must demonstrate their commitment to ERM through their own actions. They must establish expectations and accountability; provide the necessary resources; and, most importantly, leverage the ERM program in its decision processes.

Real ERM is a cultural competency that all credit unions must create to continue to succeed in the future. It’s your choice as to what you get out of it.

TONY FERRIS is managing partner for The Rochdale Group Inc.

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Great article! Unfortunately, most employees don’t feel valued or appreciated by their supervisors or employers. In fact, research has shown that the predominant reason team members quit their jobs is because they don’t feel valued. This is in spite of the fact that employee recognition programs have proliferated in the workplace – over 90% of all organizations in the U.S. has some form of employee recognition activities in place. But most employee recognition programs are viewed with skepticism and cynicism – because they aren’t viewed as being genuine in their communication of appreciation. Getting the “employee of the month” award, receiving a certificate of recognition, or a “Way to go, team!” email just don’t get the job done. How do you communicate authentic appreciation? We have found people have different ways that they want to be shown appreciation, and if you don’t communicate in the language of appreciation important to them, you essentially “miss the mark”. Additionally, employees need to receive recognition more than once a year at their performance review. Otherwise, they view the praise as “going through the motions”. A third component of authentic appreciation is that the communication has to be about them personally – not the department, not their group, but something they did. Finally, they have to believe that you mean what you say. How you treat them has to match the words you use. If you are not sure how your team members want to be shown appreciation, the Motivating By Appreciation Inventory (www.appreciationatwork.com/assess) will identify the language of appreciation and specific actions preferred by each employee. You then can create a group profile for your team, so everyone knows how to encourage one another. Remember, employees want to know that they are valued for what they contribute to the success of the organization. And communicating authentic appreciation in the ways they desire it can make the difference between keeping your quality team members or having a negative work environment that everyone wants to leave. Paul White, Ph.D., is the co-author of The 5 Languages of Appreciation in the Workplace with Dr. Gary Chapman.

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