Enterprise Risk Management

Introduction: What is Enterprise Risk Management (ERM)?

Enterprise Risk Management (ERM) is a strategic discipline that views risks not as isolated threats but as part of a unified corporate organism. Unlike the traditional approach, where a lawyer assesses only legal risk and a financier only financial risk, ERM integrates all types of risks (strategic, operational, financial, compliance) into a single framework. For medium and large businesses operating in Georgia, implementing an ERM system is vital for long-term sustainability. This involves creating a governance culture where risk consideration is embedded in every major decision, from the Board of Directors down to ordinary employees.

What Does This Service Cover?

The ERM service is a high-level consulting service that includes:

• Defining Risk Appetite: Determining, together with the Board of Directors, the level of risk the company is willing to take to achieve strategic goals.
• Creating a Governance Framework: Developing risk management policies and procedures based on international standards (ISO 31000, COSO).
• Building a Reporting System: Ensuring effective flow of risk information from lower levels to management so directors can make informed decisions.
• Scenario Planning: Conducting "What-if" analysis and legally validating Business Continuity Plans (BCP).
• Compliance Integration: Organically merging regulatory requirements with business processes.

Common Real-World Scenarios

The need for an ERM system arises at certain stages of a company's development:

• IPO (Initial Public Offering): Investors and exchange regulations require a transparent risk management system.
• Holding Governance: When a group owns companies of different profiles (e.g., hospitality, construction, agro) and a centralized view of risks is needed.
• International Partnership: Foreign banks (EBRD, ADB) require sophisticated corporate governance and risk systems before issuing loans.
• Strategic Shift: A radical change in the business model (e.g., moving from physical sales to digital), creating new systemic risks.
• Creating a Supervisory Board: When a company transitions from family management to a corporate structure, and the board needs risk control tools.

Georgian Legal Framework

Enterprise risk management is based on principles of corporate law. The Law on Entrepreneurs defines the liability of executives and the "Business Judgment Rule," which protects a director if they acted informedly and based on risk assessment. The Law on Accounting, Reporting and Auditing obliges certain categories of enterprises (Public Interest Entities, Category I and II enterprises) to reflect information on main risks and uncertainties in their management reports. For the financial sector, the Corporate Governance Code of the National Bank directly requires the existence of a risk management committee.

Service Process

Implementing ERM is a long-term process:

1. Diagnostics and Culture Assessment: How ready is the organization for open discussion of risks.
2. Design: Creating an ERM model tailored to the company's size (without excessive bureaucracy).
3. Documentation: Approving risk management policies, bylaws, and reporting forms.
4. Training: Teaching management and key employees how to identify risks.
5. Integration: Incorporating risk management into strategic planning and budgeting processes.

Why Use Legal.ge?

Enterprise risk management is not just about creating documents; it is a change in mindset. Legal.ge gives you access to high-level consultants who have experience in both legal and governance matters. Experts on our platform will help you build a system that not only meets regulatory requirements but also increases your business's value in the eyes of investors. Find your strategic partner on Legal.ge.