FERMA: Ferma seminar reports link between risk management and earnings growth

In October 1789, Versailles was the scene of one of the most important and early events in the French revolution, as angry crowds besieged the city and forced the royal family to leave the palace. In October 2012, however, the arrival in Versailles of more than 300 risk professionals was a friendly affair. Lee Coppack reports on the 2012 Federation of European Risk Management Associations (FERMA) seminar.

The highlight of the seminar, which takes place every other year, is the announcement of the results of the FERMA risk management benchmarking survey. The survey, which gives a picture of the development of risk management across Europe, has grown in significance since it started in 2000 and received 49 responses. In 2012, there were 809 replies, of which a large number came from Airmic members.

This year the survey put some concrete numbers on something experienced risk managers have long believed, but for which there has generally been only anecdotal evidence: a link between good risk management and corporate performance. The survey revealed a clear correlation between the companies with the most developed risk management processes and sustainable growth.

More than one-quarter (28%) of the companies covered by the survey with advanced risk management practices reported growth of more than 10% in terms of earnings before interest, taxes, depreciation and amortisation (EBITDA), for example. The comparable figure was 16% for companies whose risk management was in an emerging stage of development.

It’s not possible to identify yet what the relationship is, according to Dominique Pageaud, Risk Advisory Leader for France, Maghreb and Luxembourg for survey partner Ernst & Young, but the survey results support E&Y’s observations in its consulting practice. The finding did indicate, however, that investment in an enterprise risk management (ERM) framework created a positive environment for the company, he said.

Philippe Rocard, CEO of AXA Corporate Solutions, the other survey partner, added: “This is basically a demonstration of the link between the quality of risk management and the company itself. We don’t know exactly how this works, but in terms of insurance – and we have seen many examples – in general companies with the best financial results have the best claims statistics.”

Probably none of this comes as a surprise to experienced risk managers, any more than some of the other important findings of the survey. For example, in the current financial and economic climate, top management wants more information on the risks and risk management of the business, according to 46% of respondents. In 53% of the companies with mature or advanced risk management (2010 – 45%), the function now reports to the board, a board committee or a top executive.

Certification

At the seminar, FERMA also announced that its working group on European certification for risk managers intends to announce a definite plan for the project at the next major FERMA event, the risk management forum in Maastricht starting on 29 September 2013.

Over the next 11 months, the working party will discuss the scheme with FERMA’s 22 member associations and possible education providers and project managers to have a definite plan ready for announcement at the Forum. FERMA board member from the UK and certification working party member, Julia Graham stresses the importance of the views of FERMA’s member associations, including Airmic, in developing this ambitious idea. “One of our first steps is to understand what education programmes they currently provide, and what kind of competence and experience they want to see included in certification,” said Graham.

The working party has stated clearly that FERMA does not intend to organise education courses itself. Its role will be to confirm that the risk manager has achieved a high level of professional competence and skill. Julia Graham added: “There are already many courses and qualifications in risk management, but they are at different levels and cover different countries and different aspects. Nothing currently exists that provides a consistent benchmark of competence for risk managers across Europe.”

The presentation at Maastricht is most likely to propose European certification at two levels: confirmation of competence in risk management for newer entrants into the profession and a full recognition of competence and experience for more senior risk managers.

FERMA welcomes comments from Airmic members on the certification project. Contact Florence Bindelle, FERMA executive manager at florence.bindelle@ferma.eu

Julia Graham & Jorge Luzzi at the FERMA seminar, Versailles

FERMA welcomes comments from Airmic members on the certification project. Contact Florence Bindelle, FERMA executive manager at florence.bindelle@ferma.eu