Corporate Governance Issues, Natural Disasters Prompt Nonfinancial Services Companies to Reassess, Broaden Enterprise Risk Management Strategies.

U.S. Executives Identify Operational and Property/Casualty Risks as Major Concerns, According to Towers Perrin Survey

STAMFORD, Conn. -- A Towers Perrin survey of senior finance and risk management executives reveals that corporate governance issues, fear of natural disasters and pandemics, and increased liability risks are all causing nonfinancial companies to more aggressively identify and catalog risks across their organizations. In fact, 85% of those surveyed believe that their firms' emphasis on risk management will increase over the next five years, driven by the significant changes in the risk management landscape and the heightened expectations of investors, regulators and other stakeholders.

"Increased regulatory and investor attention, the possibility of natural disasters and the threat of global pandemics are prompting many firms to reconsider their approach to risk management," said Prakash Shimpi, leader of Towers Perrin's enterprise risk management (ERM) practice. "Most companies believe there is significant room to better understand, quantify and manage their risks. It's really no surprise that nearly two-thirds (63%) of our survey respondents are concerned with how they manage risk today."

Survey respondents identified operational risks -- including supply chain disruptions and even a global pandemic -- as the most important risks facing nonfinancial U.S. corporations. In order of importance, respondents also listed property/casualty insurance risks, business and strategic risks, financial and capital market risks, and compliance risks among the top five.

"While operational risks are not new, they are starting to keep more executives up at night," added Shimpi. "Unfortunately for most companies, supply chain and other operational risks are among the most difficult risks to identify, measure and manage."

Property/casualty risks include what might be considered "traditional" risks, such as a plant fire or product liability. In the survey and related interviews, however, respondents frequently noted that traditional risks are being integrated into the company's broader risk profile and managed as an enterprise risk.

Research results also indicated that compliance risks are increasingly regarded as "under control" now that most companies have addressed the compliance requirements of Sarbanes-Oxley and other regulations, said Shimpi, adding, "Compliance risk looks to be more of a process than a challenge in the future."

Growing Recognition for Importance of Enterprise Risk Management

Survey respondents expressed concern about the "siloed" nature of risk management within their organizations. Fewer than half (37%) of the companies have cross-functional risk committees, although a third (34%) either have an ERM program in place or have made a commitment to implement one. Another 36% indicate they are considering ERM as they attempt to become more proactive in the management of risk.

"While ERM is well-established among banks and insurance companies, our research clearly indicated that nonfinancial services companies are increasingly interested in taking a more integrated risk management approach," Shimpi noted.

The research findings were compiled with comprehensive online surveys and in-depth interviews conducted with more than 75 senior executives. The sample included U.S.-based, publicly traded companies with revenues greater than $1 billion. A summary of survey findings can be found at www.towersperrin.com.

Towers Perrin's ERM practice offers clients the ability to understand the full spectrum of risks faced by their organizations and to create additional value by actively managing their key risks.

About Towers Perrin

Towers Perrin is a global professional services firm that helps organizations improve their performance through effective people, risk and financial management. The firm provides innovative solutions to client issues in three areas: Human Resource Services, which provides human resource consulting; Reinsurance, which provides reinsurance intermediary services; and Tillinghast, which provides management and actuarial consulting to the financial services industry. Together, these businesses have offices and business partner locations in the United States, Canada, Europe, Asia, Latin America, South Africa, Australia and New Zealand. More information about Towers Perrin is available at www.towersperrin.com.