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How can effective enterprise risk management improve stakeholder communication?

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Enterprise risk management (ERM) is a holistic approach to identifying, assessing, and managing the risks that affect an organization's objectives, performance, and value creation. ERM can help corporate finance professionals communicate more effectively with stakeholders, such as investors, regulators, customers, and employees, by providing a clear and consistent framework for risk reporting, disclosure, and dialogue. In this article, you will learn how ERM can improve stakeholder communication in four ways: by enhancing transparency and trust, by aligning expectations and incentives, by facilitating decision making and feedback, and by fostering a risk-aware culture.

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Rusununguko Moyo

Enterprise-wide Risk Manager
Ade Atanda

Senior Enterprise Risk Professional

1 Enhancing transparency and trust

One of the benefits of ERM is that it can increase the transparency and trust between an organization and its stakeholders. By adopting a common language and methodology for risk identification, assessment, and management, ERM can help corporate finance professionals communicate the nature, magnitude, and impact of the risks that the organization faces, as well as the strategies and actions that are taken to mitigate them. This can reduce information asymmetry and uncertainty, and improve the credibility and reputation of the organization. Transparency and trust can also enable more constructive and collaborative relationships with stakeholders, and increase their confidence and support for the organization's goals and plans.

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Ade Atanda

Senior Enterprise Risk Professional
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I agree. Also, transparency in ERM implementation and trust in the professional judgements or opinions of ERM inspire confidence across the organisation and helps to drive the right cultures to support embedding of risk frameworks and processes.

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2 Aligning expectations and incentives

Another benefit of ERM is that it can help align the expectations and incentives of the organization and its stakeholders. By establishing a risk appetite and tolerance, ERM can help corporate finance professionals communicate the level and range of risk that the organization is willing and able to take to achieve its objectives. This can help stakeholders understand the trade-offs and choices that the organization makes, and the rationale and criteria behind them. ERM can also help align the incentives of the organization and its stakeholders by linking risk performance to rewards and consequences. For example, ERM can help corporate finance professionals design and implement risk-adjusted performance measures, compensation schemes, and capital allocation models that reflect the risk-return profile of the organization and its activities.

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3 Facilitating decision making and feedback

A third benefit of ERM is that it can facilitate decision making and feedback between the organization and its stakeholders. By providing a comprehensive and consistent view of the risks that the organization faces, ERM can help corporate finance professionals communicate the opportunities and challenges that arise from the external and internal environment, and the scenarios and contingencies that may affect the organization's performance and value. This can help stakeholders participate in the decision making process, and provide their input and perspectives on the organization's risk strategy and policies. ERM can also help corporate finance professionals solicit and incorporate feedback from stakeholders on the effectiveness and efficiency of the organization's risk management practices, and identify areas for improvement and learning.

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4 Fostering a risk-aware culture

A fourth benefit of ERM is that it can foster a risk-aware culture within the organization and among its stakeholders. By embedding risk management into the organization's vision, mission, values, and processes, ERM can help corporate finance professionals communicate the importance and relevance of risk management to the organization's success and sustainability. This can help stakeholders appreciate and support the organization's risk management efforts, and share the responsibility and accountability for risk management. ERM can also help corporate finance professionals promote and reinforce a risk-aware culture by providing education, training, and awareness programs, and by recognizing and rewarding good risk management behaviors and practices.

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Rusununguko Moyo

Enterprise-wide Risk Manager
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Embedding a risk aware culture is an integral component to drive value across the organisation. I have realized that for risk management program to succeed you need the following: . Tone at the top - Leadership must drive and be committed to a positive risk culture. . Involvement of all 3LoD in the implementation of a risk management program. . Training to ensure everyone understand their roles and responsibilities/ clear delineation of roles. . Reward individuals or groups for taking the right risks in an informed manner. Some signs of Effective Risk Culture are distinct and consistent tone from senior management when conveying information about risk taking and avoidance, risk information disseminated timely and transparently.

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5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How can effective enterprise risk management improve stakeholder communication?

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1 Enhancing transparency and trust

2 Aligning expectations and incentives

3 Facilitating decision making and feedback

4 Fostering a risk-aware culture

5 Here’s what else to consider

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