The Internal Organization of Enterprise Risk Management

59 Pages Posted: 26 Aug 2014

See all articles by Christopher D. Ittner

Christopher D. Ittner

University of Pennsylvania - Accounting Department

Daniel Oyon

HEC Lausanne, Faculty of Business and Economics

Date Written: August 20, 2014

Abstract

This study examines the association between the internal organization of the enterprise risk management (ERM) process (as reflected in the assignment of risk accountabilities or “risk ownership”) and the specific risk management practices adopted enterprise-wide. Using a global survey spanning multiple industries, we find that overall ERM sophistication is positively associated with the functional and hierarchical breadth of risk ownership. Furthermore, the risk management practices adopted by a firm are more strongly associated with the risk owners’ specific functions and levels than with the number of owners alone. When we examine the influence of risk ownership on the firms’ finance units, we find that units whose CFOs have risk ownership responsibilities make significantly greater contributions to a wider range of strategic and operational risks than those whose CFOs are not risk owners. In addition, the organization of risk responsibilities within finance (i.e., whether or not the compliance, internal audit, risk management, and treasury functions report to the CFO) has a significant influence on the types of financial and nonfinancial risks emphasized by the unit. We find relatively little evidence that the presence of risk owners other than the CFO reduces finance’s contributions to ERM.

Keywords: enterprise risk management, organizational design, risk owner, finance unit, internal audit

JEL Classification: G3, M4, M10

Suggested Citation

Ittner, Christopher D. and Oyon, Daniel F., The Internal Organization of Enterprise Risk Management (August 20, 2014). Available at SSRN: https://ssrn.com/abstract=2486588 or http://dx.doi.org/10.2139/ssrn.2486588

Christopher D. Ittner (Contact Author)

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-7786 (Phone)
215-573-2054 (Fax)

Daniel F. Oyon

HEC Lausanne, Faculty of Business and Economics ( email )

Anthropole 3031.1
University of Lausanne
1015 Lausanne
Switzerland
+41216923464 (Phone)

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