Treasurers who want to gain a broader ERM role often face three key challenges, according to Martin Pergler, founder and principal of Balanced Risk Strategies, Ltd.
- “Stick to your knitting.” Treasurers often face resistance by people who feel that they are already effectively managing their own frontline risks, according to Pergler. “They feel that they [treasurers] should stick to their job description and stay away from their business operations so that they don’t get in the way,” he said. That may be particularly true with treasurers who may not be viewed as leaders of overall risk in the organization. “Treasurers taking on that ERM wholeheartedly must realize that it means an educational role why it’s worthwhile and necessary,” he said.
- Develop a clear line of sight to the board. The second challenge is that the treasurers may not necessarily have a direct line to the c-suite and the board. “They’re often positioned under CFO without access to the top,” Pergler said. “They don’t have the visibility and line of sight. That needs to be addressed to get top management support.”
- Visibility to the business. Finally, what’s critical to effective ERM leadership is line of sight to the business. “ERM is not about gathering numbers,” Pergler said. “It’s about being engaged in understanding what’s happening in the business and what the businesses are doing. For example, what are the pricing practices? What are contracts structured like? What is the company’s flexibility in terms of volume or changing the supply chain or distributors? Unless you engage in that you run the risk of being shallow.”
Ultimately, what role treasurers play depends on how the company organizes around risk, according to Kieran Stack, managing director at Aon Global Risk Consulting. Some organizations have a CRO who is a member of the executive team at the c-level, he said. In other cases, there are multiple risk functions that are represented on a risk committee that reports into the executive team. “Typically the treasury function will have a seat at that table,” he said.
Treasurers can also benefit by aligning with other risk-based functions within their organization to help build a greater understanding of the firm’s key risk drivers, Stack added, and build a level of consensus throughout the organization on key priorities areas for investment and improvement. “Treasurers can showcase themselves from a risk profile to push that conversation and dialogue,” he said.
As for boards, treasurers can also ask the question of how well the executive management team evaluates itself in terms of how it manages risk. Is it truly an objective evaluation, Stack asks. “If treasury can push through those messages and agenda, it will have more influence and truly add more value and have impact on the organization,” he said.More ERM guidance is available here.