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Business Officer Magazine

The Evolution of ERM

Janice Abraham, president and CEO of United Educators, gave senior business officers something to chew on during a research universities luncheon roundtable discussion on enterprise risk management (ERM). Her comments included findings from her book Risk Management: An Accountability Guide for University and College Boards (Association of Governing Boards of Universities and Colleges, 2013).

Abraham asserted that board members need to ask thoughtful questions of institution leaders to understand whether institution risk rises to a level the board should worry about. For their part, senior leaders must direct the involvement of trustees with regard to pressing ERM concerns and must ensure that all relevant stakeholders are involved in assessing and managing risk on an ongoing basis.

While institutions share many of the same types of risk, what leaders deem as priorities will vary at any given time. Whether an institution employs a risk register to identify and prioritize threats and assign ownership, or uses another means to focus ERM response, what is essential is for leaders to frame the issues for governing bodies so trustees understand their role in responding to potential threats and liabilities, noted Abraham. For instance, faculty recruitment and succession planning are legitimate areas of risk for many institutions, but what role does the board have in these matters? Trustees are not involved in interviewing faculty, but they should be aware of the related financial concerns in terms of resources needed for recruitment.

Too often in the past, institutions would pull groups together to develop voluminous lists of all potential risks, but many would stop there. A laundry list of risks helps no one, said Abraham. Leaders must pinpoint the two or five or eight risks that rise to the level of greatest priority and concern and advance these for appropriate action. Institutions that have pushed the frontier of ERM have likewise moved beyond considering all risk as an audit function. Because of associated financial risks, ERM may often begin at the level of the audit committee, but it does not automatically belong there, Abraham said.

To prevent solutions that are focused solely on financial implications, institution leaders need to ensure that risks are owned by the appropriate entity—whether that's academic affairs, student affairs, building and grounds, athletics, or some other committee. This will not only ensure a better outcome but will also increase the likelihood of changing institution culture surrounding a particular risk, argued Abraham.

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