Letters to the Editor

ERM ARTICLE PRAISE ...

"Eliminate Risk, Eliminate Profits" (cumanagement.org/1113bestpractices) is a great message for leaders at every level. We've got to major on the major issues, not the minor.

CUES member David Proffitt, president/CEO of $184 millionAlcoa Tenn Federal Credit Union (www.atfcu.com), Alcoa, Tenn.

...AND CRITICISM

Many of Vincent Hui's examples cited as risk management run amok in "Eliminate Risk, Eliminate Profits" are eerily reminiscent of those cited by Washington Mutual management as they sought to circumvent risk process in the run-up to that organization's ultimate failure.

Further, the author's repudiation of excessive risk management process is based on an inaccurate premise-that any organization would implement ERM with the goal of "risk elimination." Such an objective is unattainable, and not indicative of what ERM serves to accomplish. Indeed, quoting from the NCUA Supervisory Letter published Nov. 7 (emphasis added): "ERM is not a process to eliminate risk or to enforce risk limits, but rather to encourage organizations to take a broad look at all risk factors, understand the interrelationships among these factors, define an acceptable level of risk, and continuously monitor functional areas that the defined risk threshold is maintained." The author paints the notion of ERM goals in a negative light by taking its objectives out of context and incorrectly as the foundation for the article's premise, doing a tremendous disservice to his readers.

CUES member Tim Bates, VP/enterprise risk management/chief risk officer at $11.5 billion BECU (www.becu.org), Seattle

AUTHOR RESPONSE

I appreciate your thoughts. We are in agreement that eliminating risk is neither part of industry ERM best practices nor of regulatory guidelines. However, in recent years we have witnessed practices at both the operating and regulatory exam level that have perverted ERM into risk elimination.

The intent of my article was twofold: to highlight where risk management has gone awry, and to illustrate how proper framing, execution and good corporate governance can help ensure excessive risk management doesn't become part of an organization's culture.

Cornerstone applauds the NCUA for the explicit guidance in its Supervisory Letter because "[encouraging] organizations to take a broad look at all risk factors, [understanding] the interrelationships among these factors, [defining] an acceptable level of risk, and continuously [monitoring] functional areas so that the defined risk threshold is maintained" are exactly the practices Cornerstone adheres to in the ERM service we provide to our clients.

My goal with the article was to urge CUs to ensure they have adopted a balanced risk management mindset and recognize that ERM is just one part of the overall strategy.

Vincent Hui, senior director at CUES Supplier member Cornerstone Advisors Inc. (http://www.crnrstone.com), Scottsdale, Ariz.

READER WRAP-UP

I appreciate Vincent's thoughtful response and clarification of objectives in writing the article. It's probably beneficial to provide additional context to my comments and feedback: I am currently in the beginning stages of launching an ERM program at BECU. The objective of our ERM program's design is to precisely avoid the situation that Vincent lays out in the article-a pedantic and bureaucratic function that seeks to manage all risks centrally and in the process stifles an organization's responsiveness and flexibility.

While I appreciate Vincent's intent and objectives in writing the article, I must say that the piece was largely read by individuals in our organization as having a very dismissive tone of ERM. While Vincent seeks to define a set of warning signs that would indicate a poorly designed program, perhaps it could have been framed better by outlining more explicitly a contrasting vision of what a successful ERM program looks like. Many credit unions are at the early stages of building ERM programs, and I think a more positive tone in a counter example would have served to reinforce how ERM can build a more risk-resilient organization.

Tim Bates

CUES has partnered with Cornerstone to offer ERM planning services. Learn more at cues.org/cornerstone.