Enterprise Risk Management (ERM) at Wells Fargo

Executive Summary

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Management of risk is a more and more critical driver of business and stakeholders have become much more apprehensive regarding risk. Risk may be a strategic decisions driver and also a cause of ambiguity in an organization. Risk may also be implemented in an organizations activities. An enterprise-wide approach to management of risk makes it possible for an organization to think about the probable impact of all risks types on all activities, processes, products, services and stakeholders. Thus, implementing a holistic approach will result in Wells Fargo Company gaining from what is called the upside of risk. This study therefore draws together various developments to offer a structures approach to implementing ERM in the Wells Fargo Company.

Introduction

Management of risk has become more and more significant to organizations stakeholders that are concerned regarding general risks in business. No company can be successful without taking on some business risk level. Additionally, current events have proven the significance of sufficient programs of risk management. Effectual management of risk is consistent with sustainable success quite simply. Enterprise risk management (ERM) permits firms to create and construct an effective program of corporate governance that drives awareness of risk throughout a particular organization (Blocher, Stout & Cokins, 2013; Benson, & Clay 2003; Dafikpaku, Eng & Mcmi, 2011). Consequently, enterprise risk management is a necessity for developing a sustainable plan of business. The paper will discuss in details the concept of ERM, rationale of ERM and in-depth analysis of the technique of ERM.

Enterprise Risk Management

ERM is a process and framework that organizations utilize to manage the risks that could have a positive or negative impact on the success and competitiveness of the company (Hoppes, Ahrmqr, Hagg-Rickert, Youngberg, McCarthy & Cphrm, 2014). According to Benson, & Clay (2003), risk is perceived widely to encompass fiscal risk as a result of foreign fluctuations of the currency, interest rates changes, and hazards such as flood or fire, strategic risk correlated to the decisions by the top management. It regards the strategy of the firm and risk of operating correlated to the employees or the customer products.

Wells Fargo

Wells Fargo is a multinational banking and financial services company situated in the United States. The company was incorporated in 1929 on January 4th (Reuters, 2016). The company is headquartered in California and San Francisco. According to Reuters (2016), Wells Fargo is the third largest bank in America in regards to assets and the largest bank in terms of capitalization of the market. Wells Fargo comprises of three segments of operation that include wealth and investment management, community banking and wholesale banking. Additionally, it offers banking, retail banking, investments and trusts and brokerage among other products and services. Wells Fargos net loan as quoted by Reuters (2016) is about $ 905,014 million. Further, the companys total deposit is about $ 1.2 billion and its total security of investment comprise of nearly $ 347.56 million (Reuters, 2016).

Wells Fargo and ERM

The corporate risk of Wells Fargo comprises of enterprise oversight of operational risk, credit risk and market risk (Reuters, 2016; Dafikpaku, Eng & Mcmi, 2011).The risk management of the company has been strong since antiquity. The risk ownership and accountability culture and the escalation and identification of an early problem are the companys central competency. Wells Fargo has continued to invest in its risk infrastructure. Additionally, the companys high profile has prompted greater customer, public, regulatory and stakeholder expectations. The company is also advancing its functions of risk management to back the franchise growth.

Rationale for ERM

The vibrant and increasingly competitive environment of business today has experienced various debacles such as frauds, fiscal crisis and natural disasters (Dafikpaku, Eng & Mcmi, 2011; Hoppes et al. 2014; Lopatina, 2012).This has consequently brought to the forefront the management of risk. Risk management was a field that has previously centered on perilous risks. Additionally, it is mostly acknowledged in the insurance and the fiscal sectors. All these aspects coupled with various measures taken to mitigate both the existing and developing risks have given businesses, governments, and stakeholders a novel environment view.

Thus, enterprise risk management takes a holistic and novel approach towards risk management. According to reports, simple connection exists between the processes of ERM and its advantages. This is influenced by several factors such as risk culture and appetite that go a long way to demonstrate the ERM value (Dafikpaku, Eng & Mcmi, 2011; Blocher, Stout & Cokins, 2013). In the current competitive environment of business, entities of businesses are confronted with bigger opportunities as well as risks as they struggle to create value. In the present global economic crisis quake, businesses have taken various vital measures in a bid to stay. For instance, some firms have tremendously cut down on the staff number to save costs. Thus, it is of great significance for firms to take advantages of making suitable decisions on their strategies on tentative outcomes (Blocher, Stout & Cokins, 2013).

Enterprise risk management need

Due to recession, businesses have been forced to place more focus on risk management correlating to all facets of their businesses (Dafikpaku, Eng & Mcmi, 2011). Such management is widely known as enterprise risk management. The ERM gives a description of an array of activities that firms undertake to deal with all the various risks that face it in a strategic method. These risks comprise of strategic, fiscal, hazardous, operational and compliance risks that span through the organization. According to Blocher, Stout & Cokins (2013), several of such risks have a crucial effect on the profitability, reputation and effectiveness of the business enterprises.

Additionally, in the present day, successful management of risk is about both the downside and upside. This novel approach, enterprise management of risk seeks to enhance the value of the shareholder by managing reservations that may either positively or negatively impact company objectives attainment. Moreover, it is an incorporated approach used to manage all risks all together. In general, companies have learned that risk management when done correctly can result to augmented value of the shareholder (Dafikpaku, Eng & Mcmi, 2011; Blocher, Stout & Cokins, 2013). Businesses are anticipating moving from a simple process of control to a process of value creation using the enterprise-wide approach.