The challenges of and solutions for implementing enterprise risk management

Enterprise risk management (ERM) began to take root in the late 1990s and has since become generally recognized as an expectation of good management and corporate governance. However, as evidenced by surveys and research, many companies still struggle with ERM implementation. This article explores the challenges companies face when implementing ERM and offers solutions for firms struggling with the concepts and execution. We draw upon Hydro One's experience in achieving ERM maturity as a best practice case study. The company's ERM methods have been researched and documented extensively. With over 15 years of ERM success, Hydro One is an excellent organization to benchmark for ERM best practices.     

Questions asked about enterprise risk management by risk practitioners

Enterprise risk management (ERM) was introduced in the 1990s and has become an indicator of good management. Despite this success, many organizations still seek practical advice on ERM implementation. This article provides questions asked of an experienced chief risk officer and his staff by risk practitioners at many organizations over 11 years. Detailed answers based on best practices are provided. This article is important as it shows what areas were of concern related to ERM implementation, and many of these concerns may still apply today. The questions presented in this article fall in the following 10 areas of ERM implementation: background and context, organizational, getting started, risk identification, culture and engagement, risk criteria (which includes risk appetite and risk tolerances), tools and techniques, reporting, the benefits, and the future of ERM. This article should be of interest to practitioners involved with ERM, consultants in the area of ERM, and academics teaching courses on ERM, risk management, and related topics. This article will also provide a base against which further future research can be done to see how ERM evolves.     

Baltic monetary regimes in the XXIst century

The accession of Estonia, Latvia and Lithuania to the European Union would mean that they would join the Economic and Monetary Union in the status of “countries with a derogation”. They would remain committed to adopting the euro eventually and to this end to joining ERM II. The following article examines the present monetary regimes of the three countries and the progress made so far in their preparation for EMU.     

Estonia’s monetary integration into EMU

Estonia is not only striving for rapid acceptance into the European Union, but it is also directing efforts towards being integrated into EMU without delay. The following article first comments on the extent to which the convergence criteria, as the central precondition for admittance to EMU, have been fulfilled. It then proceeds to discuss the compatibility of Estonia’s present currency board system with the requirement of its participation in the ERM II. Finally, it looks into the consequences of a premature subjection to the ECB’s monetary strategy.     

关于中国企业内部控制框架的思考

中国企业在制定内部控制制度的时候,缺少清晰的内部控制框架。美国COSO委员会2004年结合萨班斯法案提出了ERM框架,在内部控制的战略目标和风险管理等方面有较大突破。中国企业的内控模式可以在ERM框架的基础上结合COSO框架进行构建。中国企业在构建内控体系时,要重点关注战略目标、法人治理结构、商业伦理和风险管理四个方面。在此基础上,中国企业的内控框架应分为内控目标和控制要素两个维度:目标维度包括战略目标、经营目标、报告目标和合规目标,要素维度包括控制环境、风险管理、控制活动、信息和交流、监控。这四个目标和五个要素有机结合构成了内部控制框架。     

Political and Institutional Factors in Regime Changes in the ERM: An Application of Duration Analysis

This paper analyses the functioning of the European Exchange Rate Mechanism (ERM). To that end, we apply duration models to estimate an augmented target‐zone model, explicitly incorporating political and institutional factors into the explanation of European exchange rate policies. The estimations are based on quarterly data of eight currencies participating in the ERM, covering the complete history of the European Monetary System. Our results suggest that both economic and political factors are important determinants of ERM currency policies. Concerning economic factors, the money supply, the real exchange rate, the interest rate in Germany and the central parity deviation would have negatively affected the duration of a given central parity, while credibility and the price level in Germany would have positively influenced such duration. Regarding political variables, elections, central bank independence and left‐wing administrations would have increased the probability of maintaining the current regime, while unstable governments would have been associated with more frequent regime changes. Moreover, we show how the political augmented model outperforms the model which just incorporates pure economic determinants, both in terms of explanatory power and goodness of fit.     

Will ERM entry make British companies more competitive?

In the wake of Britain's entry into the ERM, this article looks at the consequences for British exporters' competitiveness. Outlining the changing macroeconomic pressures which will ensue and the policies of exporters in the past, we suggest the practical steps companies will need to take to gain advantage from the new environment as well as to mitigate the impact of a less forgiving exchange rate regime.     

Rhodesia—A beginning,not an end

An embargo is an old, but not always proved instrument of trade policy. In their original sense embargo measures served the prevention of deliveries of militarily important goods to belligerent countries, and thus had a passive and neutral character. Later on, however, they were increasingly used as an economic means of pressure for active prosecution of political objectives. So after World War II the USA e.g.—and under its influence other Western countries—for political reasons, applied embargo measures to restrain trade with East-bloc countries. The strict embargo policy, however, failed owing to the opposition of interested economic circles and the consequent expansion of East-West trade by the socialist countries. Today the further maintenance of embargo lists for deliberations predominantly in the field of defence policy is still disputed as regards its suitability. The embargo against Rhodesia recently decided on by the UN is the application of commercial discriminations as a political means of coercion on a worldwide basis. The following article deals with the impacts and long-term consequences of this massive embargo policy.     

The Political Economy of Basle II: The Costs for Poor Countries

The financial crises of the 1990s triggered many changes to the design of the international financial system. We use the formulation of the new Basle capital accord for banks (B‐II) to illustrate that, while much affected, developing countries have had very little influence on this so‐called new international financial architecture. We argue that B‐II has been formulated largely to serve the interests of powerful market players, with developing countries being left out. At the same time, we demonstrate that B‐II is likely to raise the costs and reduce the supply of external financing for developing countries in particular. Furthermore, and importantly, B‐II may well increase the pro‐cyclicality of external financing, an unfortunate outcome given that developing countries already face much volatility in terms of capital flows. Overall, while B‐II may indeed compensate for a range of weaknesses of Basle I, the exclusionary policy process and costs which B‐II imposes on developing countries require a re‐think of the way in which crucial elements of financial governance, such as the Basle capital accords, are developed and implemented.     

Company–specific Factors and International Competitiveness

This article arises from concern about the inadequacy of the theoretical and empirical evidence on the costs and benefits to business of the EU single currency. It uses a survey of companies in the UK (which has not had a stable currency regime) and Ireland (committed to the ERM) together with the "process" dimension of the Buckley et al (1988) 3-P model of the international competitiveness of the firm to highlight implications for exporters of long-term government commitment to exchange-rate stability. The results indicate a positive link between currency stability and three measures of "process" competitiveness: commitment to international business, economies of scale and economies of scope.     

US health care policy in 1990: looking back, looking ahead

Health policy in the United States is best understood as a policy of incrementalism with major interventions occurring only in response to crisis, as in the case of the Medicare legislation that profoundly altered our historic financing of health care. The characteristically minor, unplanned, adjustments that are made often have major unanticipated consequences, and these serve to explain the radical transformation of the nation's health system in the half-century since World War II. The main elements in this change--the evolution of employment-tied private insurance for the majority of the population, the predominance of specialism and superspecialism in medical practice, the expansion of the voluntary hospital system with capital liberally raised through tax-exempt bond issues, advancing technology and medical capability are reviewed. The major persistent policy issues--uncontrolled expenditures and the increasing numbers of uninsured--will ultimately precipitate change, perhaps by the end of the decade, very likely a minimum benefit, universal federal-state insurance system, supplemented by the private market--hardly radical systemic reform.     

Kombilöhne gegen Erwerbsarmut: Warum die USA erfolgreicher sind als Deutschland

“Make work pay” strategies are an integral part of labour market policy instruments in developed countries. There are two considerations behind these measures. Firstly, subsidizing employment at the bottom of the income distribution should motivate the unemployed to accept jobs with lower market wages. Secondly, the wage supplement should increase the living standards of the recipients and reduce the risk of poverty. The U.S. EITC and the German UB II based on these two goals. Our paper begins with an overview of these two wage top-up schemes. This is followed by an empirical evaluation of the two instruments regarding their capacity to prevent in-work poverty and to strengthen labour market participation. The EITC obtains better results compared to UB II in both regards.     

Business Decision Making in National Socialist Germany: Machine Tools, Business Machines, and Punch Cards at the Wanderer-Werke AG

This article analyzes the goals and strategies of a medium-sizemachine-building enterprise located in Chemnitz, the "SaxonManchester," during the Nazi period. The Wanderer-Werke AG produceda broad range of goods, from machine tools to business machines,during the years before World War II. It pursued an essentiallyconservative strategy, adhering to its established product lineand not embarking on armament production until required to doso. This policy, however, did not prevent the firm from actingon strategic opportunities offered by Nazi occupation policy,as in 1940 when it sought to establish "cooperation" with theFrench punch-card producer Compagnie des Machines Bull. Thearticle considers the extent to which enterprises like Wanderer—medium-sizedcompanies with products of some value to the war effort—couldpursue autonomous strategies within the framework of the NationalSocialist regime.     

Economic planning in theory and practice

This contribution summarises some of the most significant results of a detailed investigation made by the author. It deals with planning attempts made since the end of World War II in France, Belgium, Britain, Italy, Norway, Sweden and the Netherlands, the concept and policy of a social market economy in the Federal Republic of Germany, the long-term programmes conceived under the Marshall Plan, the “General Aims” of the High Authority of the European Coal and Steel Community, the Five Year Plan of the Euratom Commission and the programming of economic policy within the Common Market envisaged by the EEC Commission. The author has laid particular stress upon the quantitative and qualitative efficiency of such planning experiments.     

The second five year plan

After a short survey of Repelita I, Indonesia’s First Five Year Plan, the author reviews Repelita II, Although this Second Plan’s broad strategy remains much the same as of Repelita I, its emphasis is on problems recognised but not yet overcome, e.g. those of income policy, job creation, regional development, education, etc.     

Combining Risk and Responsibility Perspectives: First Steps

Business activity can be analyzed through a ‘risk awareness’ perspective and a ‘responsibility awareness’ perspective. However, risk and responsibility are actually interdependent. Risk-taking triggers responsibility issues and taking responsibility means risking being asked critical questions. This article suggests some first steps for combining these two perspectives conceptually. After several introductory illustrations showing how risk and responsibility issues are intertwined, the article looks separately each at risk and at responsibility. Then the argument that such perspectives could be usefully combined is elaborated further from a theoretical angle and from a practical angle, by looking at various ethical issues and by presenting paradigmatic examples of balancing or sharing risk and responsibility related to leadership, to ERM and to insurance.     

Is the international propagation of financial shocks non-linear?: Evidence from the ERM

This paper tests for the presence of non-linearities in the propagation of devaluation expectations among the countries that were members of the Exchange Rate Mechanism of the EMS. We show that whenever it is possible to estimate a model for financial interdependence, a full-information technique to detect such non-linearities is more efficient than the limited-information estimator proposed, in a similar context, by Rigobon (2000). This happens, in particular, when the periods of market turbulence are relatively short. Our evidence suggests that non-linearities in the propagation of devaluation expectations were a general phenomenon in the ERM. Normally the non-linearity amounts to a stronger effect in the same direction, but sometimes, as in the Dutch case, it implies a significant effect in the opposite direction: evidence of flight-to-quality.     

Deep empirical risk minimization in finance: Looking into the future

Many modern computational approaches to classical problems in quantitative finance are formulated as empirical loss minimization (ERM), allowing direct applications of classical results from statistical machine learning. These methods, designed to directly construct the optimal feedback representation of hedging or investment decisions, are analyzed in this framework demonstrating their effectiveness as well as their susceptibility to generalization error. Use of classical techniques shows that over-training renders trained investment decisions to become anticipative, and proves overlearning for large hypothesis spaces. On the other hand, nonasymptotic estimates based on Rademacher complexity show the convergence for sufficiently large training sets. These results emphasize the importance of synthetic data generation and the appropriate calibration of complex models to market data. A numerically studied stylized example illustrates these possibilities, including the importance of problem dimension in the degree of overlearning, and the effectiveness of this approach.     

农产品贸易自由化对我国粮食进口的影响——论我国粮食生产的稳定性

粮食贸易是市场参与各方和学术界共同关心的焦点话题之一。我国粮食生产不具有明显的比较优势,因此,一般认为加入世贸组织以后粮食进口将快速增加。但迄今为止,国内粮食市场并没有受到国际市场的严重影响,这一事实产生的部分原因可能是粮食流通体制改革和农业税改革,但农村劳动力、灌溉、播种面积等准固定投入的粘滞性也可能发挥了重要作用。文章分四个部分从这一角度解释我国粮食市场供给稳定的内在原因。     

Finanzielle Repression — ein Instrument zur Bewältigung der Krisenfolgen?

Financial repression committed by central banks has been put forward as a means to secretly reduce the real burden of high public debts. Financial repression has allegedly played an important role in the impressive reduction of the US debt ratio after World War II. A mix of conventional budget consolidation and rapid growth was the main driver in this relative debt reduction with a minor role for financial repression. But does financial repression really exist? The authors express different opinions on evidence for this concept. Those authors who find that there are indicators of financial repression fear redistributive tendencies between debtors and creditors and high opportunity costs in the form of savings and investment distortions. Therefore, financial repression is not a “cure” for the high public debts amassed in the euro area during the recent sovereign debt and banking crisis. Furthermore, the high sovereign debts in the euro area may threaten economic development and impose high costs on society. Therefore, reducing these debts is politically highly relevant, and fiscal policy should be characterised by a modest reduction in government spending and/or tax increases, combined with a policy promoting economic growth. Macroprudential regulations should supplement this financial policy.