Higher risk maturity linked to low stock volatility

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Aon Global Risk Consulting has found a significant link between a higher risk maturity rating and lower volatility in stock price.

Researchers at Aon and the Wharton School at the University of Pennsylvania, worked with financial results from more than 100 global publicly-traded companies across more than 25 industries. During a two-year period from 2010 to 2012, stock price volatility was 50% lower for organisations with high risk maturity ratings. Those with advanced risk management practices performed significantly stronger while markets were particularly volatile between 2011 and 2012, and only organisations with the two highest ratings closed the year with a positive return. Organisations with lower-rated maturity ended the year with a 17-30% loss.

No doubt the information confirms what risk management officers have always believed. Group managing director of Aon Risk, Theresa Bourdon, said it was “an incredibly valuable tool that facilitates transparency and provides a benchmark on risk management. It enables organisations to shape their risk management processes to improve financial performance.”

The report also found:

• Industry averages overall mirror the global average Risk Maturity Rating, which reveals that most organizations are in the middle-of-the-road on the complexity of risk, agreement on strategy and action and alignment to execute risk management programs
• Size of an organization measured by annual revenue does not appear to play a major role in influencing risk maturity
• Chief Financial Officers scored slightly lower risk maturity ratings, on average, than other respondent groups; this may reflect the increased insight of a senior leader into risk and governance processes, or focus on the financial impact of risk
• Chief Risk Officers scored slightly higher risk maturity ratings on average than other respondent groups; this may reflect the level of risk management maturity at an organization that has established a titular CRO role
• There appears to be little difference in the level of consistency of North American and EMEA region operations with their organizations’ global risk management strategy, regardless of whether the organization is headquartered in either of those regions

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