The Hindu Business Line : ‘Indian cos forced to look at risk management’

Mumbai, April 4 Global competition and rapid growth has forced many Indian companies to look into their enterprise risk management (ERM), concluded The Conference Board, an international business membership and research organisation, in its recent report - Assessing the climate for enterprise risk management in India.

ERM is an enterprise wide process allowing companies to identify, assess and respond to the social, political and economic risks. The report, which is sponsored by KPMG and SAP India, studies the state of risk management integration in companies based in India.

Case studies

The study includes case studies on Tata Motors, ICICI Bank, Tata Chemicals and Dr Reddy’s. Three of these companies have adopted ERM in part as they have securities listed in both the US and India. The board members of those companies believe that a comprehensive approach to risk management is one way of satisfying listing requirements.

“The four companies examined in this report are more of the exception than the rule in India, where ERM is not widely used as a management tool,” said Mr Ellen Hexter, Director, Enterprise Risk Management, The Conference Board and co-author of the report.

Focus not on opportunity

The report states that ERM is at a very nascent stage in India and that Indian firms often tend to focus on the downside of risk and not the opportunity side.

“So far, the custodian of the ERM remains the audit committee in most Indian companies, which limits its focus to primarily on financial issues without addressing areas such as managing high growth, business execution, innovation, talent, retention, succession planning, industrial safety and environment changes, all of which form an important part of the ERM strategy,” said Ms Poonam Barua, Regional Director-India, The Conference Board.

As Indian companies begin to grow globally, they will need to increasingly view enterprise risk management as a board responsibility and put into place a risk committee that reports to the board to get maximum value from this strategic corporate function, added Ms Barua.

For many of the Indian firms, risk continues to be managed in silos, whether in business units or functions; Indian companies do not take a comprehensive approach that the ERM adopts. But that has began to change, noted the report.

“Recent events have shown that various high performing companies have suddenly gone down under. This has resulted in various organisations trying to understand how they need to review their companies due to risks emanating from capital market volatility, forex fluctuations, economic policies, changing business models and global slowdown,” said Mr Richard Rekhy, Chief Operating Officer, KPMG.

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