Managing risks across an enterprise

Need to develop an EWRM framework in tune with transparency goals

With Indian public sector enterprises (PSEs) increasingly going global, there is a need for the sector to move beyond the mandatory and non-mandatory clause 49 of the listing agreement and adopt best international practices in corporate governance.

A fair and effective corporate governance framework needs to evolve in the light of changing circumstances of business. There is no 'one size fits all' approach here. Several countries (particularly in continental Europe) have adopted an inclusive 'stakeholder' approach where public sector companies are considered 'social institutions' with responsibilities and accountability, not just to shareholders but to employees and the wider community in general. This approach is in stark contrast to the stand in the UK and US where the emphasis is on creating wealth for shareholders.

While approaches in individual countries may differ, generic corporate governance principles—of responsibility, accountability, transparency and fairness—are widely appreciated, along with the ability to adjust and suitably re-engineer the enterprise-wide risk management (EWRM) framework.

EWRM is an integrated and coordinated approach to managing all risks and all consequences of risks. It assumes that risk management should be embedded throughout the organisation, since everyone has a responsibility to manage risk, whether at the strategic or operational levels.

The development of an EWRM framework that is in tune with financial markets and the transparency agenda is a necessity, rather than a holy grail for PSUs. It is important for PSUs to move beyond the set of guidelines in clause 49, and evaluate international best practices, such as those in the combined code (UK). The combined code outlines that risk management should be systematic and be embedded in the company's procedures, with the directors closely involved in monitoring this initiative and reviewing the effectiveness of internal control systems.

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