In the years leading up to the collapse of the financial services sector in 2008, "risk management" was considered something of a profanity in some circles. The inflation and unchecked trading of mortgage-backed securities was a course study in unmitigated risk, and the result was devastating.
While short-term, large-volume trading and investment may have yielded short-term profits, the long-term trend suggests otherwise. A report released this week by Aon and the University of Pennsylvania's Wharton School of Business claims researchers have found a clear link between an institution's risk maturity and return on assets or stock performance. The data suggest limited risk can prove more profitable in the long-term. "We are seeing firms that rate above average in risk maturity differentiate themselves in three areas: risk complexity awareness, formal agreement on risk management strategy/expectations and the degree to which organizational architecture is aligned to support achievement of risk management objectives," said Michael Joiner, associate director of enterprise risk management at Aon Global Risk Consulting. Researchers culled data from companies ranging from mid-sized firms to Fortune 500 corporate giants, suggesting such a trend rings true regardless of asset volumes.