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Running head: Business Regulation and ERM

Business Regulation and Essential Risk Management Lamont Clark, Cristina Mancha, Bobby Jo Sonon, Gwendolyn Wilson, Arnie Zhang, Business Law/531 22 April 2012 John Fossum

Business Regulation and ERM Business Regulation and Essential Risk Management Common law placed the risk of loss to goods on the party who held title to the goods.

Article 2 of the Uniform Commercial Code (UCC) rejects this notion and adopts concise rules for risk of loss that are not tied to title. It also gives the parties to a sales contract the right to insure the goods against loss if they have an insurable interest in the goods (Cheeseman, 2010 p.296). Enterprise risk management is processes to achieve future strategic objectives try to control the results that uncertain factors cause, which are expected acceptable ranges that ensure and promote the realization of the overall interests of the organization. Enterprise risk management (ERM) framework is the integration concept on the basis of the internal control framework of Fraudulent Financial Reporting National Committee of Sponsoring Organizations Commission (COSO) belonging to the Treadway Commission in September 2004. ERM is participated by the Board of Directors, management and other employees, which uses in Strategy formulation and identifies possible potential impacts on matters of the enterprise. It also manages risks within the scope of its risk appetite. ERM provides reasonable protection for the enterprise to achieve the objective. Based on the 7 Essential Elements of ERM and the role of Internal Audit by Tony Harb, a perfect enterprise risk manager should be clear what ERM will cover, what enterprise risk management is, why the ERM is becoming more important, how relative people know ERM is alive and well. Meanwhile, internal audit should link between ERM and internal audit (Harb, para.2008). Tort Violation In the Business Regulation simulation Alumina was accused of several business tort violations. The management team in the simulation obtained legal counsel to advise them on how to deal with the potential business risk and tort violation. It is important that the managers are

Business Regulation and ERM compliant and knowledgeable of the federal and state laws to run a successful business. Alumina was accused of being negligent from a routine EPA inspection five years ago. The PAH concentration was found to be above the allowed limit after test sampling was conducted. The violation was corrected after the company complied with a cleanup order enforced by the EPA. In the simulation Kelly Bates accused Alumina of contaminating the water with carcinogenic effluents, which is allegedly the cause of her 10-year-old daughter to develop Leukemia. The company decided to conduct a study of the PAH levels, which turned out to be lower than the prescribed amount. Kelly Bates obtained information pertaining to the companys prior environmental violation five years ago under the Freedom of Information, which influenced her to file a personal injury lawsuit. Alumina corrected the violation that occurred five years ago but there was still enough evidence to show probable cause because of their past negligence. Alumina decided to enlist the service of the American Arbitration Association (AAA) to resolve

the dispute. Mediation is an alternative dispute resolution (ADR) offered by the AAA. Mediation is the method of handling disputes which provides the greatest opportunity for win/win solutions (Kelsey, 2012, para. 9). ADR method is an attractive option to quickly resolve disputes and save money. Seven Elements to Enterprise Risk Management Enterprise Risk Management (ERM) applies to a structured enterprise business element in an effort to reduce loss of capital. ERM is people, systems and processes working together across the organizations to systematically think about and manage a wide range of risks that could impede achieving organizational objectives/opportunity (Harb, 2008). There are seven elements that make for a successful ongoing framework that keeps unwanted risks to a minimum. The first element is management commitment. This element is where the leadership gets onboard and owns the process. As with any process that affects many people, it is important that

Business Regulation and ERM

leadership is supportive so that process can be implemented across all levels. Leaders are the rolemodels throughout the organization and credibility is important to earn and maintain. It is important during this element in transitioning the leadership to be onboard and supportive to emphasize the importance of who, what, where, why, and how this process will be, as well as gain input from all. As with any process, the likelihood to achieve positive results when personnel are felt included as apart of a given process as well as knowingly aware that their input is valued. The second element is communication and consultation. This element is expressing the benefits of the process and being able to convey the importance to all key departments that would be involved in an effort to have the process of reducing and minimizing risks throughout the organization. This element is also where progress and improvements will be reported as it would engage and motivate those involved. This creates a natural confidence boost as positive results are achieved and will translate into filtering down to all levels. The third element is policy and procedure. This element is where the implementation of policy, strategy, and the final plan are in place so that it holds all accountable. It also incorporates a measure to have the process streamlined and easy to use that would be effective and efficient. A technology based program would be an effective way to reach all levels of personnel. All supporting documents would also need to be redefined to incorporate the process as it rolls out to accommodate any changes. Training and education is the fourth element. This is essential in acknowledging that the most important resource in any business is the person itself. Providing initial in depth training as well as on going growth training is essential in empowering people in their responsibilities and accountabilities and builds their own capabilities. People are more likely to remain vested in an organization when they feel equipped to perform. In addition, providing management and technical skills is critical as progression is made through an organization.

Business Regulation and ERM Effective and efficient framework is the fifth element. This element is ensuring the framework is well documented and technology in place is supportive of the action plans to carry

out an effective and efficient framework. This element emphasizes the roles and responsibilities of all personnel and holds everyone accountable to them, as identified. The sixth element is the risk management is applied in practice. A risk assessment process is put into place and conducted. This will identify, quantify, and prioritize risks continually. In addition they will be evaluated, audited, and verified. The final element in ERM is ongoing monitoring and review. This element pulls together all personnel and all the components of the framework identified. This would allow for a process to continuously be reviewed and improved as necessary. Risks profile would be reviewed for constant improvement and as a deterrent to prevent risks for risks that have occurred or for those that could emerge. Compliance measures would be upheld. Overall, all the elements together would provide for fewer accidents or incidence. It also allows making adjustments as needed to prevent what could be risks leading to lawsuits. Without this implementation the results could be costly in monetary value and public reputation that can be detrimental to an organization. The idea is to keep all personnel involved as apart of a team to be risk aware as it adds value as opposed to the alternative costs. In the simulation, had Alumina implemented the seven elements to ERM the overall costs incurred over time would be avoided. In addition it may have been settle by ADR also be conscientious of the downfalls that resulted. Kelly Bates had a case to prove Alumina was responsible for her daughters leukemia and since Alumina was not appropriately equipped with a framework in place nor the tools to respond in the favor of the organization by preventing risks over the course of their first negligent encounter. Conclusion

Business Regulation and ERM Through analysis of the 7 Essential Elements of ERM and the role of Internal Audit, the enterprise risk managers are well aware of the risk as an objective existence in a certain environment and within the time limit; it has the objectivity, universality and necessity. At the same time, the risk also has identifiable and controllable characteristics. By risk identification, assessment, and response and control activities, the risk may result in loss of control within reasonable limits. Risk management is a systematic process in addition to being a way to manage

the role of the internal audit in enterprise risk management, which is essential of their function that is reflected in the monitoring activities of the essential risk management.

Business Regulation and ERM References Cheeseman, H. (2010). Business Law Legal Environment, Online Commerce, Business Ethics, and International Issues (7th Ed.). Upper Saddle River, NJ: Pearson Education, Inc. Harb, T (2008). 7 Essential Elements of ERM Retrieved from http://www.inconsult.com.au/Articles/Essential%20elements%20of%20ERM%20and %20role%20of%20%20Internal%20Audit.pdf Kelsey, K. (2012). Mediation: The Sensible Means for Resolving Contract Disputes. Retrieved from www.mediate.com