Barriers to Effective Risk Management

This essay analyzes the potential benefits of improved risk management practices, commonly called enterprise risk management (ERM), and the potential barriers to implementing meaningful ERM at U.S. firms. ERM is an integrated risk management framework that seeks to improve knowledge of and communication about potential risks throughout the firm, starting with the board and senior management team. Indeed, the board and senior management team are vital to creating a risk culture. The essay considers the impact of boardroom dynamics and U.S. corporate culture on risk management practices. The essay further considers whether regulation or a different approach is needed to encourage U.S. corporations to invest the necessary human capital in meaningful ERM.