ERM in Pharmaceutical Industry
Case Study: Johnson & Johnson
Under the guidance of: Mr. Venugopal
By: K. Samhitha FS10-017
Introduction
ERM Need for ERM in pharmaceutical industry
Johnson & Johnson
A multinational founded in 1886 Fortune 500 company Subsidiaries , outreach & employees Awards & Rankings Products Financial details Mission & Credo
Risk exposures & Mitigation
Compliance related-Chief compliance committee &audits Reputation risk quality control & insurance Market risk- financial instruments Credit risk-credit policy & limits, credit derivatives Legal risk- recording accruals Operational risk- CAPA tool Weather related-BCP Regulatory risk-making provisions Catastrophic risks- BCP Potential chemical & physical hazards-toxicology team & industrial
hygiene program
ERM at J & J
Essence of ERM: 1. ERM provides a framework for discipline 2. ERM is much more than mere compliance to SOX Act. 3. ERM drives value through knowledge
ERM Structure & Responsibilities
The Board: _ Overall responsibility for risk management _ Ensure risk management is embedded into all processes and activities _ Review group risk profile Audit Committee: _ Receive routine reports from GRMC _ Set annual audit program and priorities _ Monitor progress with audit recommendations _ Provide risk assurance to the Board _ Oversee RM structures and processes Group Risk Management Committee (GRMC): _ Formulate strategy and policy based on risk appetite, risk attitudes and risk exposures _ Receive reports from business units, review risk management activities and compile the group risk register _ Receive reports from business units and make reports and recommendations to the Board _ Track RM activity in the business units and keep the risk management context under review
Cont.
Disclosures Committee: _ Review and evaluate disclosure controls and procedures _ Consider materiality of information disclosed to external parties Compliance committee: _Ensure Compliance with laws & regulations: -Antitrust and Competition Laws -Environmental Laws and Regulations -Healthcare Compliance; Approval, Manufacture, Sales and Marketing of Drug, Medical Device, Diagnostics, and Consumer Products -Employment and Labor Laws and Policies -Securities Laws -Respect for Trade Secrets and Confidential Information
Cont.
Business units: _ Produce specific policy statements, as necessary _ Prepare and update the business unit risk register _ Set risk priorities for business unit _ Monitor projects and risk improvements _ Prepare reports for GRMC _ Manage control risk self-certification activities Top down & Bottom-up Approach of Reporting & Communication
Implementation of ERM
BRM within businesses & operationsfoundation 3 Phase Implementation: -1st:Building a foundation for BRM -2nd:Segment-level BRM -3rd:Enterprise level BRM (ERM)
Results
Creation of risk universe- aggregation of risk themes. Nine-Box Rating Map-for mapping & categorizing risks into: -Low -Moderate -High
Lessons Learnt
Be facilitative, consultative, and help your stakeholders address their current needs to create quick wins and build a foundation of trust. Dont boil the ocean. Do you want comprehensive coverage? Absolutely. Do you want to look at all large risks? You bet. But do it in a smart fashion. Dont name 100 potential risks and ask the business to assess everything under the sun. Get the right level of sponsorship and executive engagement.
Create standardization where possible to gain efficiencies, and set minimum thresholds of execution while being as flexible as possible
Include people with diverse backgrounds from different industries and functions as each has a different way of looking at risks. Understand the concepts of risk management, and learn from what others have done, but dont forget to customize approach, tools, and processes to what will work in your culture. Relentless persistence for improvement
Conclusion
ERM is perceived as a tool to mitigate down-side exposures. But emphasis is not made on how to capitalize on upside opportunities. Hence, a change of perception would go a long way in making ERM in pharmaceutical industry more effective.
