Accountants will increasingly need to help the organizations they work with manage their financial risks, according to panelists at an event sponsored by the Association of Chartered Certified Accountants and the Institute of Management Accountants.
The panel discussion on Tuesday evening at St. John’s University in New York was led by Dr. Paul Walker, executive director of the university’s Center for Excellence in Enterprise Risk Management and featured two CFOs and a CEO. “Enterprise risk management is one of the most important topics for accountants,” he told Accounting Today in an interview ahead of the panel discussion. He noted that the ACCA recently conducted a survey on future skills for finance departments and CFOs, and risk management was one of the major skills cited.
“The recurring theme was skills around broader business risk, and linking risk to strategy,” said Walker. “Earlier this year the SEC announced that enterprise risk management is one of their national priorities. We’ve got to do better at managing risks, connecting the dots, and understanding how they link to business strategy.”
St. John’s is training business students in such skills, offering master degrees in enterprise risk management in conjunction with the university’s Center for ERM. Walker recently co-authored a study for the ACCA and IMA on risk culture, which relates closely to ERM. “How many times have we opened a newspaper and there’s a new CEO of a company?” he said. “The first thing they say is I’m going to change the culture of that place.’ You can build a perfect enterprise risk management process, but the culture can ruin the whole thing.”
One of the speakers at the panel discussion was Dalynn Hoch, CFO of the international insurance company Zurich North America. She cited email as one of the risks facing organizations like hers.
“Email is really a challenge because there is so much people are trying to communicate and bring to you and they try to put it in the form of email,” she said. “A lot of times that can actually interject additional risk into your organization. What you really need to do is have more conversations. I will send a note and say, “Could you set up a half hour? Could you set up 15 minutes? Let’s actually talk through this.’”
Hoch noted that Zurich has been pivoting away in recent years from saving money on expenses to focusing more on growth, investment and technical excellence. “The challenge and the opportunity are actually the same,” she said. “We have a company that wants to grow. How do we ensure we have the right metrics? How do we have the right monitors? How do we ensure that when we grow, it will be profitable because we don’t just want growth for growth’s sake? It has to be profitable.”
Members of the finance function need to be able to point out where there’s good risk and where a company should take that risk and help the business move forward, she added.
Jeffrey Allen, CFO at Gold Group Enterprises, a growing technology firm in Clark, N.J., said the biggest challenge faced by his company is having growth that is greater than its profit margin.
“Year after year after year, I need to find more capital to support a rapidly expanding organization,” he said. “You can’t cut costs because you’re growing. I need every resource and I need to tell them, Yeah, I know, but you need to do more.’ And eventually they begin to squeak. So one has to find a way—and some of them have been very creative—to raise either equity or debt to support the growth of the company. And what I thought used to be huge debt is no longer huge. It’s now just big. And the company keeps getting larger and the debt keeps getting smaller in relation. But it’s a very, very scary thing because one is building this pyramid and you just hope someone is going to come and take you out in an acquisition. It’s a very strange environment. You’re building a rocket ship and it is taking off for a very wild ride. That’s the greatest challenge I face.”
Frederick Schea, president and CEO of First Savings Bank of Perkasie, in the Philadelphia area, noted that in the financial services industry, capital is king. “If you’re capitalized and you have capital, you’re going to be fine,” he said. “You can weather things. Since 2008, it’s been a wild ride, but in a different way. It kind of went down and came up. But it’s been fascinating. The banks that struggled were the banks that didn’t have enough capital. Capital planning and the risk associated with what you’re doing, and the impact that it has on your capital base, are a key part of business in the financial industry.”