Is ERM Ethical?
Or more properly, must ERM be based upon an ethical position?
If so, is it possible that the ethical position that underlies many ERM programs is different from the ethical system of the firm?
One school of ethics, Utilitarianism, suggests that we should pursue the “greatest good for the greatest number”. Unknown to many who subscribe to this ethical school, Utilitarianism is a close cousin to Hedonism, that has the famous motto “Eat, Drink and be Merry for Tomorrow we may Die”.
In fact Adam Smith provides a direct link between those two mottoes with his invisible hand. If each individual follows the Hedonism rule, then the Utilitarianism objective will be met according to Smith.
Risk Management is based more on an Epicurean ethic. Philosophical Epicureans are not the art and wine connoisseurs of popular definition. They pursue tranquility that is achieved through banishment of fear.
Epicureans observed that indiscriminate indulgence sometimes resulted in negative consequences. Some experiences were therefore rejected out of hand, and some unpleasant experiences endured in the present to ensure a better life in the future. The summum bonum, or greatest good, to Epicurus was prudence, exercised through moderation and caution. (Wikipedia)
Interestingly, Thomas Jefferson spoke of himself as a Epicurean. The arguments between factions expressed in the Federalist Papers among other places among the US founders was in part an argument between Utilitarians and Epicureans.
And that is the same argument that plays itself out between Risk Management and business leaders in today’s firms. Some Risk Managers would argue that Risk Management is Ethical whilst their opponents are simply greedy. But looking behind the surface of that argument reveals that there are simply two different ethical schools.
Risk Managers need to find the common ground and show the value of their ethic to the Utilitarian/Capitalist school of ethics. Not an easy sale. But as a result of the Financial Crisis, more and more folks are coming to doubt the ultimate infallibility of that Invisible Hand. Epicurean thought is gaining traction.
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Riskviews 
August 1, 2010 at 1:44 am
[…] Is ERM Ethical? (March 2010) Tries to tie risk management and other points of view commonly found within firms to different schools of ethics, rather to “right and wrong”. […]
March 15, 2010 at 9:39 am
What a great post that makes us think! People have varying degrees of ethics and what is appropriate. Perhaps this balance leads the ethical risk manager to frame the discussion in terms of reputational risk as a key component of the discussion. Instead of dying tomorrow as the hedons prophesy, the successful risk manager might be able to extend that period out to next week or next year before the firm dies.