On the Determinants of Enterprise Risk Management Implementation

Corporate governance failures and new legislation have emphasized the importance of enterprise risk management (ERM) in preventing fraudulent reporting. Despite the increased attention on ERM, little research has been done to explain why some organizations embrace ERM while others do not. The objective of this paper is to explore how the board composition is related to the degree of enterprise risk management implementation. Our main findings are that the position of the CEO in the board has an important influence on the level of ERM. We find that board independence alone does not induce enterprise risk management implementation. Only boards with a separation of CEO and chairman, tend to favour more elaborated ERM. Firms with independent board and separation of CEO and chairman show the highest level of ERM. One possible explanation for our results is that CEOs do not favour ERM implementation and are able to withstand pressure from the board when they are occupying the seat of chairman.