Anette Mikes

Towards a Contingency Theory of Enterprise Risk Management

Enterprise risk management (ERM) has become a crucial component of contemporary corporate governance reforms, with an abundance of principles, guidelines, and standards. This paper portrays ERM as an evolving discipline and presents empirical findings on its current state of maturity, as evidenced by a survey of the academic literature and by our own field research. Academics are increasingly examining the adoption and impact of ERM, but the studies are inconsistent and inconclusive, due, we believe, to an inadequate specification of how ERM is used in practice. Based on a ten-year field project, over 250 interviews with senior risk officers, and three detailed case studies, we put forward a contingency theory of ERM, identifying potential design parameters that can explain observable variation in the “ERM mix” adopted by organizations. We also add a new contingent variable: the type of risk that a specific ERM practice addresses. We outline a “minimum necessary contingency framework” (Otley 1980) that is sufficiently nuanced, while still empirically observable, that empirical researchers may, in due course, hypothesize about “fit” between contingent variables, such as risk types and the ERM mix, as well as about outcomes such as organizational effectiveness.

Book Review: Making a Market for Acts of God

In the emerging field of social studies of finance (SSF), and in the related domain of finance that SSF scholars seek to critically reflect on, rarely do we come across authors who manage to address the entire range of potentially interested readers: academics, practitioners, students, and lay persons, dishing out thought-provoking insights in language that is both accessible and exacting. Paula Jarzabkowksi, Rebecca Bedranek, and Paul Spee have achieved this with Making a market for acts of God, their study of the reinsurance market. This book is an eye-opener in many ways. First, it is an introduction to a market that many people have no idea even exists. Reinsurers are the “insurers of insurers,” protecting their clients from capital depletion in the event of large-scale disasters known as “acts of God” and, as they see it, extending society’s safety net by “picking up the pieces after disasters alongside government, aid organizations, and communities” (p. 6). The authors’ aim is to “bring this market to life for others” and their academic instinct to explore it was dead right. It led them to study a global “nexus” of practices by conducting ethnography over four years (2009–2012) in 25 countries. The beneficiaries, in this case, are all of us interested in the world of finance and its role in society’s ability to deal with disasters. Second, it is eye-opening to encounter a segment in the highly globalized, highly competitive world of professional finance in which actors talk about “service” and in which a firm’s “credibility” counts as much as its capital strength. In the wake of the great financial crisis and subsequent banking scandals, it is refreshing—and, for advocates of neoliberal market fundamentalism, thought-provoking—to learn that, if you want to succeed in reinsurance, greed is not good. Although populated by large, exchange-listed, profit-seeking international financial behemoths, this market operates on a set of general understandings (Schatzki, 2001, 2002) that restrains individual gain-seeking at the expense of the collective market. Even as reinsurers compete with each other, they are bound by strong social norms. Acceptance of the cyclical and long-term nature of the reinsurance business motivates its practitioners to balance conflicting objectives, rather than maximizing just one—profitability. Both the cedents—the insurers seeking coverage—and the reinsurers seem to be “in the same boat,” with the general understanding that collective risk-bearing, rather than individual performance is the name of the game. Cedents shopping for the optimum deal have to balance the need for full coverage of a specific risk, such as a Japanese earthquake, with the ensuing higher premiums. Competing reinsurers, on the other hand, must steer clear of reckless risk-taking (quoting too low) and of losing business (quoting too high). 657690OSS0010.1177/0170840616657690Organization StudiesBook Review research-article2016