ERM at General Motors

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ITS835Chapters303134.pdf

ITS 835 Chapters 30, 31, 34

Miscellaneous Case Studies on ERM and RIsk Enterprise Risk Management

Dr. Mike Peterson

Overview

• Three case studies • Alleged Corruption at Chessfield

• Bon Boulangerie

• Building an ERM Program at General Motors

• Different scenarios and organizations • Useful in examining broader implications • Look for similarities

Alleged Corruption at Chessfield

• Chessfield • Fictional private American company in sports and entertainment • HQ in NYC • “Good ol’ boys” board

• Informal governance • Whistle-blower

• CEO compensation very high (4x comparable peers) • Potential environment for excessive risk taking

• Chessfield CEO requested independent governance review

Chessfield, cont’d.

• Review included • Document review – minimal documentation • Interviews – substantial discontent and lack of confidence in

leadership

• CEO compensation • Limited documentation to support decision • Basis seemed to be long relationship with decision makers • Industry standard metrics missing

• Risk management • Few risk management protocols or controls • Most processes were manual (i.e. no IT)

Chessfield, cont’d.

• Review resulted in 45 recommendations • 43 from reviewer

• 2 added by regulator

• All but 2 recommendations were accepted, which were • 3 longest serving board member resign

• A female be selected for directorship and compensation committee

• Identify broad implications of this case

Bon Boulangerie

• Bakery in Oakville, Ontario • When purchased, single site retail and café

• Ray Pane added wholesale operation

• Plan to expand wholesale business • From 20km to 120km coverage

• Include grocery stores

• Add product line

• Goal: triple profits in 3 years

• What are the operational risks?

Building an ERM Program at General Motors

• Background • GM approach to ERM • Game theory • Looking forward

ERM at GM Background

• ERM program began in 2010 • ERM to help achieve competitive advantage

• New CEO

• GM bankruptcy in 2009

• CRO appointed • Financial and Risk Policy Committee formed

• Risk officers identified and aligned to all CEO direct reports

• GM embraced aggressive ERM

GM Approach to ERM

• ERM built on GM’s vision • Design, build, and sell the world’s best vehicles

• Identify and manage key risks • Bottom-up approach • Focus on “what can go right”

• Lessons learned • Gave responsibility of assessing risk probability and impact to senior

executives

• Replaced ranked risk list with tiered list • Implemented a 5 point scale to measure

• Inherent risk • Current risk • Residual risk

Game Theory

Looking Forward

• Top risk attention in place • Ready to add focus on day-to-day operational risks

• Developing program for operational control self- assessment (CSA)

• Approach is a policy-based CSA • Starts with simple yes-no questions to line managers

• Benefits of a policy-based program • Policy can be leveraged to ensure results • Helps to educate teams on larger scope objectives • Ensures that policies are current and effective