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The Sarbanes Oxley policies are an indication of the global trend that is now taking placing across the world to achieve transparent and ethical operations in all businesses no matter what the field. Recently conducted surveys reveal that there is a rise in stock processes whereas costs have been lowered. Moreover, employees that work at companies which have a good reputation in term of good business practices and governance, are more satisfied with their jobs compared to others. As such, all the CEOs around the world consider risks associated with reputation and regulatory to be the most prominent threats to their business.

As companies strive to adapt to this new legal environment, businesses have taken action, and are now moving towards scientific approaches from philosophical methodologies in order to handle their compliance risks. This move has its significance because it is more focused towards achieving greater business advantages by improving operations and managing things more efficiently. After all, this is the key to sustaining an ethical culture, which can help companies gain a competitive edge and acquire the topmost market positions. Probably the best way in which this can be achieved is to implement and follow the ERM model.

Enterprise Risk Management or ERM is a process which aligns competitive strategies with processes that identify, analyze, reduce and control risks. The main objective is to cut down losses as much as possible while grabbing all the available opportunities. Compared to other similar approaches, ERM is more disciplined and helps a company manage uncertainties; the effect on profits is favorable as well.

Though, there are several companies that are interested in building an ERM model, the process is not easy and there are a lot of challenges involved. In managing compliance and ethics in businesses, all the ERM components have to be used in order to achieve notable goals. The same is shown in the figure below. The top surface displays the categories of risk; the side surface shows the organizational entities and the front surface is a view of the ERM components.

The ERM model also focuses on the most severe risks that are associated with every company. These are usually related to reputation and regulations and can have devastating damages if not effectively mitigated.

The basic ERM model serves as a guide to executives and directors and helps them in coordinating the tasks that help in identification of potential risks. These can be encountered by the employees, the leaders, the business units and the geographical divisions. Once all the risks have been determined, the focus shifts to mitigating and avoiding them so as to ensure that the expected outcome is achieved. The effectiveness of ERM lies in proper orientation of processes, impressive tools and complete information. Other factors like leadership and employees behavior can also have an impact.

Only when compliance risks and ethics are properly and effectively managed, will a company be able to build a strong corporate culture and thrive in the market.

Further reading: Corporate Governance | Audit | Performance Improvement