A HOLISTIC PERSPECTIVE OF ENTERPRISE RISK MANAGEMENT
The current research investigates the impact of an organization's internal environment on the effectiveness of its Enterprise Risk Management (ERM) program. The investigation focuses specifically on the effects of an organization's risk management philosophy as well as its risk appetite and tolerance on employees' perceived responsibility for risk management and one form of proactive behavior (i.e., problem prevention behaviors). Drawing on Construal Level Theory (CLT, Trope and Liberman 2007), this research provides a unique understanding of how the organization's risk management philosophy can enhance the effectiveness of ERM by promoting a holistic view of risk management. In particular, the current research predicts that a holistic view can be activated by emphasizing the desirability of ERM in risk management philosophy. A holistic perspective of risk management will increase employees' willingness to take more responsibilities for risk management and more proactive behaviors in risk management. The current paper further predicts that the influence of risk management philosophy depends on the presence and expression of Key Risk Indicators (KRIs) in the description of risk appetite and tolerance. The above predictions are tested using two experimental studies. Study 1 examines the joint effect of emphasizing desirability (versus feasibility) in an organization's risk management philosophy, and presenting KRIs in its risk appetite and tolerance, on employees' proactive behaviors in risk management. Study 2 examines the joint effect of emphasizing desirability (versus feasibility) in an organization's risk management philosophy, and using qualitative (versus quantitative) expressions of KRIs in its risk appetite and tolerance, on employees' perceived responsibility for risk management and their problem prevention behaviors in risk management. The results from the two studies in general support the hypothesized propositions. Implications for both ERM and CLT literatures are discussed.