Transparency Needs ERM

TRANSPARENCY NEEDS ERM

Improvements in corporate transparency are closely linked to enterprise risk management, says Marie-Gemma Dequae

Transparency in non-financial reporting can only be organised in a sustainable way if there is a well-established enterprise risk management (ERM) methodology and framework. This ERM is a substantial part of corporate governance. It is part of the second line within the three lines of defence, working together with the first line of operational and control managers, and with the third line of internal audit. Good cooperation between all lines is of great value in order to reach high quality reporting. This emphasis on cooperation is clear in reports prepared by FERMA together the European Confederation of Internal Auditing (ECIIA) on the most recent European Company Law Directive.

The risk manager pays attention to all risks, current and future. In today’s rapidly changing business environment of disruptive technologies with, for instance, shifting cyber and terrorism risks, focus on emerging risks is important. Therefore, it would be valuable for the EU to recognise and ask for formalisation of the role of the enterprise risk manager, in the way that the European General Data Protection Regulation does for the data protection manager. Reporting on risks without a sustainable ERM methodology and framework is in itself a major risk and can damage the competitiviness of European companies on foreign markets and their sustainable performance.

Although country-by-country financial reporting is less part of the risk manager’s day-to-day responsibilities than non-financial risks, it is not that remote. In addition to compliance and reputation risks, as Jo Willaert has explained, there could be issues related to global insurance policies with focus on tax issues: when to issue local policies, how to allocate global premiums to local subsidiaries and their tax issues, how to settle claims internationally and so on. Captives may also come under the spotlight.

According to recent discussions with CFOs, good cooperation between risk managers, CFOs and fiscal managers is needed and is already growing. Therefore, good fiscal risk management in the international environment is essential to realise high quality country-by-country reporting and minimise the related risks.

Marie-Gemma Dequae, member of IRM’s technical and education committee and FERMA’s scientific advisor.