Research has shown that enterprise risk management (ERM) adds value. One research paper showed that ERM adds to the value metric called Tobin’s Q. Other award-winning research has shown that ERM enables better decision making. The authors of that research state:

“Specifically, as companies implement an ERM process, the new knowledge it provides them about objectives, risks, oversight, information and communication, and the internal environment leads to enhanced management, as evidenced by increased management consensus, better-informed decisions, better communication with management regarding risk taking, and increased management accountability. This enhanced management, in turn, leads to improved performance.”

ERM and Reputation
As an extension, it would make sense that there would be some impact on reputation risk if a company does ERM well, is sophisticated at ERM, and has developed a mature process. While this common sense may prevail, empirical data and testing is lacking. This is primarily because measuring both ERM and reputation risk is not so easy. But the questions remain:

• Is there a relationship between ERM effectiveness and reputation?
• Furthermore, does this relationship show up in performance metrics?

While we cannot answer these questions here, we can explore some simple relationships and at least gain a few insights. Admittedly, reputation risk and ERM are still young disciplines and more data is needed to explore these and other questions. Any attempt to answer these questions with current data carries some caveats. First, this is complicated data from nonfinancial firms and all data was before the year 2014. Second, these are simplistic looks at the data as split into the upper and lower percentiles (split at 50%).

Third, the information discussed below reveals levels that have not been tested for statistical significance. In spite of these, let’s examine what may be obvious to some business risk experts.

What data reveals about ERM and Reputation Level
The big question might be, “Do we see higher reputation levels associated with better ERM?” The answer is not yet (at least in this data at this point in time). Companies in the sample with lower reputation scores have higher ERM effectiveness scores than companies with higher reputation scores.

Other Explanations
A good researcher knows to develop the theory first and also to consider alternative explanations. It is wise to follow that process.

For example, in this sample companies with greater reputation are bigger than the lower tier reputation companies. It might be true that larger companies have more difficulty building a more mature ERM capable company because they are so large and spread around the globe. It could also be true that smaller companies are over confident in the ERM processes. Either theory (and others) could explain why the high ERM and high reputation levels do not match up.

This testing is left for future research.

The Volatility Theory
An alternative theory (what academics explore and test) is that the level of reputation is not what’s important because the company already had their long-standing (developed over many years) reputation when they established ERM. Instead, it might be true today that the real reputation value of ERM is that it helps manage the volatility around reputation because the company is better prepared, sees the reputation risk, correlated risks, helps get the companies ahead of the risk events, and helps them understand how these events might play out and impact the organization’s reputation.

Examining the data shows that the answer on volatility is that this could be true. The data show that at set reputation levels (meaning when the data is split on high and low reputation volatility levels), better ERM leads to lower volatility in reputation at both levels and that is probably a very good thing for most organizations. It appears that ERM does have an impact on reputation but the impact is likely on reputation volatility.

Conclusion
Prior research shows ERM adds value and helps improve decision making. With further testing, future research may be able to confirm another obvious truth, that better ERM improves reputation. But it may be doing so in a surprising way via reduced volatility of reputation.

General Motors has ended its operations in Venezuela after authorities in the strife-torn country seized the company’s plant there on Wednesday.

In a statement Thursday, General Motors said that assets, including vehicles, were also seized from the plant as it was taken over by Venezuelan officials while demonstrations surged throughout the country. The company said in a statement that the facility was taken without due process and that it intends to defend its interests.

General Motors has about 2,700 workers and 79 dealers employ 3,900 in Venezuela, according to the Detroit News, which added that “GM’s Venezuelan operations have been a drag on earnings for several years.” Last year the company lost $400 million before taxes in South America, which accounted for roughly 6% of global sales at 583,000 vehicles. GM also took a $720 million charge in the second quarter of 2015 for currency devaluation and asset valuation write-downs as Venezuela’s economy crumbled.

Losses such as the plant and possibly even including the currency hits may or may not be covered by political risk insurance. The challenge in securing such coverage is in accurately predicting when and where it might be needed—companies cannot wait until a threat emerges before securing cover, which is likened to attempting to buy home insurance after your house has caught fire. GM did not immediately respond to an inquiry asking whether the plant was insured for misappropriation.

In its statement, GM said workers at the seized plant would get separation benefits if the government allows such. The statement added that dealers in Venezuela will continue to service vehicles and provide parts.

In its “Credit and Political Risk Insurance Report & Market Update, January 2017,” insurance broker Arthur J. Gallagher ranked Venezuela as one of the world’s riskiest nations, describing the county’s risk potential as “very high,” ranking it just above Libya.

Indeed, this is not the first instance of Venezuela’s government appropriating private assets amid rising nationalist sentiments and domestic unrest. “It fits a broader pattern, in the sense that the government’s response to surges in opposition activity tends to be the deepening of the revolution,” Phil Gunson, a Venezuela-based analyst for the International Crisis Group, told The Washington Post.

Opposition forces on Thursday called for further mass protests against the government. Venezuela has been in crises as forces opposing the government of President Nicolas Maduro accuse the hand-picked successor of populist leader Hugo Chavez of running a dictatorship. Runaway inflation and shortages of food, fuel and goods have stoked nationwide protests that killed three on Wednesday, including a 17-year-old male and a National Guard sergeant.

The fuel shortages are especially ironic given that Venezuela holds the world’s largest proven oil reserves with 298.4 billion barrels, topping Saudi Arabia’s 268.3 billion barrels of reserves, according to 2015 figures from the U.S. Energy Information Agency.