Senior management of non-financial firms rated by Standard & Poor’s (S&P) analysts can in future expect to be questioned on the firm’s risk management practices. This is the implication of a move by the credit ratings agency to integrate analyses of Enterprise Risk Management (ERM) into their ratings of non-financial companies.

At the recent 2008 Session of the Asia Risk Council, Paul Clarkson of S&P Hong Kong gave a detailed overview on how S&P conducts ERM assessments of financial institutions, as a guide to how non-financial institutions may be measured. Clarkson stated that S&P’s purpose in including ERM assessments within corporate rating assessments is to assess management teams’ ability to understand, articulate and successfully manage risk. Eventually, this should lead to greater transparency for investors and issuers of debt.

“Ultimately, S&P desires to drill deeper into quantitative financials and to link risk management with corporate strategy.”This move is expected to change how rated companies position and value risk management, given the direct impact on their company’s S&P credit rating.

S&P believes that ERM assessments will provide more structure and consistency to assessments of a company’s risks. Ultimately, S&P desires to drill deeper into quantitative financials and to link risk management with corporate strategy.

An effective and well-executed ERM strategy, S&P says, will set 'survivor-winners’ apart – companies that are more likely to weather, rebound and capitalise on the unexpected.

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