Government-Owned Enterprises (GOEs) and Government-Linked Companies (GLCs) occupy a unique and critical space in the global economy. They are tasked with the dual objectives of achieving commercial success and fulfilling vital public policy objectives. This hybrid mandate, however, exposes them to a complex web of risks that are somewhat peculiar to public enterprises, including political interference, conflicting and overlapping mandates, and public scrutiny. To navigate this complexity successfully, a robust Enterprise Risk Management (ERM) framework, underpinned by a well-established risk culture, is not a luxury, but an existential necessity.
The traditional view of risk management as a compliance-only function is dangerously inadequate for today’s GOEs and GLCs. A mature ERM program provides a structured, holistic approach to identifying, assessing, managing, and monitoring all risks across the entire organization, in line with its strategic goals and mandates. It drives performance and builds resilience, improves decision-making and sustains growth. Other benefits of ERM include.
1. Safeguarding Public Assets and Trust: GOEs and GLCs are custodians of national wealth and public trust. A major failure be it a financial scandal, a big operational incident, or a failed strategic investment, erodes public confidence and can have severe fiscal consequences for the state. ERM acts as a critical safeguard.
2. Navigating the Dual Mandate: ERM provides the framework to balance commercial risks (market, competition, investment) with non-commercial risks (political pressure, operational, regulatory changes). It allows leadership to make informed decisions that align with both profitability and public good.
3. Enhancing Strategic Decision-Making: ERM moves risk management from the back office to the boardroom. By integrating risk assessment into strategic planning, organizations can pursue opportunities with a clear understanding of their risk appetite, leading to more sustainable growth.
4. Improving Resilience and Operational Continuity: From pandemic attacks to supply chain disruptions, a proactive ERM approach ensures that organizations are prepared, resilient, and can continue operations with minimal disruption.
5. Attracting Investment and Maintaining Creditworthiness: A transparent and effective risk governance structure signals to both local and international investors and rating agencies that the company is well-managed, making it easier and cheaper to raise capital and attract investment into the country.
An effective ERM framework is only as strong as the culture that supports it. A “risk-aware culture” means that every employee, from the C-suite to the front lines, understands risk, feels empowered to speak up about concerns, and sees risk management as an integral part of their responsibility. Several leading state-owned entities globally are lauded for their world-class enterprise risk management approach, which has been central to their success and resilience.
1. Temasek Holdings (Singapore): As a global investment powerhouse and Singapore’s sovereign wealth fund, Temasek is a prime example of ERM excellence. Its success is built on a foundation of rigorous risk governance.
– Robust Framework: Temasek employs a dedicated, independent risk group that reports directly to the Board. The ERM process is deeply integrated into their investment decision-making.
– Clear Risk Appetite: Temasek has a well-defined risk appetite statement that guides portfolio construction, balancing exposure across geographies, industries, and asset classes.
-Culture of Discipline: The famed “Temasek Charter” underscores their role as a steward of Singapore’s financial future, instilling a culture of disciplined, long-term value creation and risk awareness at all levels.
2. Equinor (Norway): Formerly Statoil, this majority government-owned energy company operates in one of the world’s most high-risk industries. Its world-class safety and risk management culture is its greatest asset.
-Operational Risk Paramount: Equinor’s ERM is legendary for its focus on operational integrity, particularly in harsh environments like the North Sea. Their “Tripod” model for incident investigation is an industry standard.
-Strategic Pivot with Risk in Mind: Recognizing the risks of climate change and the energy transition, Equinor has strategically diversified into offshore wind and other renewables. This strategic shift was undoubtedly guided by a forward-looking ERM process that identified stranded asset risk and the opportunity in green energy.
-Psychological Safety: They have cultivated an environment where any employee can “Stop the Work” if they perceive an unsafe condition, demonstrating a deeply ingrained risk-aware culture.
3. Ministry of Finance Incorporated-MOFI (Nigeria): Restructured in 2023, MOFI serves as the Federal Government of Nigeria’s primary investment driver and asset manager. With strong risk management frameworks and governance structures, MOFI exemplifies how Government-Owned Enterprises (GOEs) can achieve superior performance through effective Enterprise Risk Management (ERM).
– Risk Ownership and Awareness Culture: MOFI fosters a culture where every staff member is responsible for identifying risks that could affect their objectives, goals, and KPIs. Clear communication and escalation channels ensure that risks are promptly reported and addressed at all levels of the organization. Risk Management is further integrated into performance management process.
– Risk Governance: The Board requires risk clearance and advice for all major decisions, underscored by the department’s direct reporting line to the Board.
– Awareness and Capacity Building: Recognizing the vital role of its portfolio companies in fulfilling its mandate and ensuring profitability, MOFI invests significantly in building risk management capacity across its portfolio companies. This is achieved through initiatives such as the Annual Risk Leadership Forum, where C-suite Executives and Risk Leaders from over 30 GOEs/GLCs were equipped with necessary knowledge needed to strengthen risk management processes, practices and improve performance outcomes across GOEs/GLCs. The Risk Technical Workshops, which had Risk Management Staff from 27 GOE/GLCs equipped with technical skills on effective risk framework, policies, processes, culture and risk-based decision making, and the Annual Excellence Award, all aimed at strengthening the risk teams within its portfolio companies.
For GOEs and GLCs looking to strengthen their ERM and culture, the journey involves:
1. Leadership Commitment: Secure unwavering sponsorship from the Board and CEO. The Tone from top is critical.
2. Develop a Tailored ERM Framework: Adapt global best practices (like COSO ERM and ISO 31000) to the organization’s unique context, mandates, and risk profile.
3. Define Risk Appetite: Articulate clearly how much risk the organization is willing to take to achieve its objectives and mandates
4. Integrate with Strategy and Performance: Weave risk management into strategic planning, budgeting, and performance management cycles.
5. Invest in Communication and Training: Relentlessly communicate the value of ERM and train employees at all levels to be risk managers.
6. Measure and Evolve: Continuously monitor the effectiveness of the ERM program and adapt it to face new and emerging risks.
For GOEs and GLCs, the mandate is clear. The question is no longer if they need a sophisticated ERM system, but how quickly they can build one. By learning from global leaders like Temasek, Equinor, and MOFI Nigeria, and by fostering a culture where every employee is a risk aware individual and a risk manager, these entities can protect the public interest, fulfill their strategic roles, and build a legacy of sustainable success and resilience for the nations they serve. The stakes are simply too high to settle for anything less.
For more information,
Contact
Risk Management Department,
Ministry of Finance Incorporated (MOFI), Nigeria
risk@mofi.com.ng
