Act on corporate risk management standard
By Oh Chang-kyun
Oh Chang-kyun
Every time a catastrophic disaster arises, the Korean government and the national sentiment are lumped together as a loud voice. And then we forget again. And again, similar disasters are repeated.
Old habits and customs are not easily corrected. Therefore, strong national laws are needed, and there should be a professional disaster management system detailed in a manual. Every time a disaster occurs, the president's instructions are already meaningless. Systematic, well-disciplined responses and measures on site are crucial.
Enterprise Risk Management (ERM) encompasses the culture, capabilities, and practices, integrated with strategy-setting, which organizations rely on managing risks to create, preserve, and realize value. In other words, it is an activity that aligns risk with strategy and performance. Good risk management and internal controls are essential to the long-term sustainable growth and success of all organizations.
The uncertainty of the global environment has been increasing. The World Economic Forum has commented on the “increasing volatility, complexity and ambiguity of the world.” Since Sept. 11, 2001, major OECD countries, including the United States, have established and announced standards.
Korea has experienced tremendous economic losses due to the financial crisis in the late 1990s, major disasters such as the Sewol ferry disaster in 2014 and the withdrawal from the Gaeseong Industrial Complex.
Recently multinational corporations have diversified their risk portfolio into Southeast Asian countries as a result of the economic losses and uncertainties of Korean companies in China because of the deployment of a THAAD anti-missile system.
And every year, various infectious diseases have caused a sharp slowdown in economic growth due to economic adverse effects. The global market has further amplified uncertainties and shrunk Korean companies in overseas markets due to the Trump administration's trade protectionism; as well as the earthquake disasters in Gyeongju and Pohang. We may also meet the risks of terrorism, earthquakes, typhoons, and nuclear problems in the near future.
Of course, ERM is not a framework that covers all social and political catastrophes. However, such frameworks and concepts can be applied to any social and political risk management culture and system.
The ERM standard is a basic guideline for safety and crisis management that minimizes loss and prevents risks by identifying, analyzing and evaluating all possible risks in an organization or environment. It is a basic principle that can prevent disasters and minimize losses in houses, buildings, and social infrastructure such as roads, bridges, railways, subways and airports.
The process creates improved outcomes through a risk management strategy of the so-called mission, vision and core value of the organization. It is an essential textbook to prepare for major disasters and to protect the environment as well as to expand economic growth and trade opportunities.
If your organization has a mission, strategy, or goal, then you need to make decisions that take risks into account. Therefore, ERM can and should be used by all kinds of organizations, from small businesses to community-based social enterprises to government agencies.
In other words, ERM's focused framework is to enhance the value through setting strategy development for missions, vision and core values, formulating business objectives, and prioritizing severity in the context of risk appetite.
Through the enactment of legislation, organizations of a certain size (national and local public institutions, educational institutions, local autonomous entities and companies) are encouraged to use guidelines or manuals appropriate to the environment and business activities of the organization based on the standard act.
It is desirable to establish or integrate specialized research institutes for the study of integrated risk management standards in government-related institutions, such as OECD countries do, in order to formulate, update and educate the act and its implementation.
Finally, the ERM framework itself has been continuously updated in the U.S. In the future, several trends will have an effect on ERM such as proliferation of data, leveraging with artificial intelligence automation, managing the cost of risk management, and building a stronger organization.
The writer holds a Ph.D in business management and teaches at colleges in Seoul. He can be reached at ckohph@gmail.com.