Risk Alert or Risk Averse for Business Sustainability. G. Simpson, FCII

Transcription

1 Risk Alert or Risk Averse for Business Sustainability G. Simpson, FCII

2 Agenda Perspectives on Risk Emerging Trends on Risk Management RM and Sustainability Everything Matters Employee Engagement Returns on Employee Business Liability Risks Lessons from Japan for the Risk Alert

3 Perspectives on Risk Alert vs Risk Averse The first step in the risk management process is to acknowledge the reality of risk. Denial is a common tact that substitutes deliberate ignorance for thoughtful planning

4 Emerging Trends on RM Access to capital increasingly dependent on RM value/commitment Listed companies share is value increasingly tied to board commitment and RM depth and breadth in company

5 Business Risks, Sustainability & Development

6 The mature perspective of Risk Management For the most part, risks are perceived as any thing or event that could stand in the way of the organization achieving its objectives. Hence, it is not about being 'risk averse'. Risk Hence, it is not about being 'risk averse'. Risk management is not aimed at avoiding risks. Its focus is on identifying, evaluating, controlling and "mastering" risks.

7 RM Definition Risk Management spans policies, procedures, and practices involved in identification, analysis, assessment, control, avoidance, minimization or elimination of unacceptable risks. A firm may use risk assumption, risk avoidance, risk retention, risk transfer, or any other strategy (or combination of strategies) in proper management of future events.

8 RM leads to Opportunities Risk management also means taking advantage of opportunities and taking risks based on an informed decision and analysisoftheoutcomes.

9 Quote A good rule of thumb is to assume that everything matters. Richard Thaler

10 RM issues for the Risk Alert Employee Engagement levels Business Interruptions & or liabilities due to indirect occurrences Cyber Liability Institution with systems and or culture that fails to capture innovative possibilities Lived values as a Corporate Citizen

11 Employee Engagement cont d Leading companies focus on harnessing the discretionary effort of employees. This has made the difference to how quickly some companies recover from the downturn. Employee Engagement dropped from 60% in 2009 to 56% in 2010 in the regions researched. GeorgiaSimpson@TheCorpor ateclinic.com

12 Correlation Between Employee Engagement and Total Shareholder Returns There is strong correlation between employee engagement and financial performance. Organizations with high levels of engagement (65% or greater) continue to outperform their competitors the total stock market index and posted total shareholder returns of companies with 65% or more EE was 22% higher than average in companies with low engagement (45% or less) had a total shareholder return that was 28% lower than the average GeorgiaSimpson@TheCorporateClinic.com

13 Build Engagement Go the extra mile to show care At most companies, new hires have to wait 12 months before taking vacation. But Windings lets them accrue it after three months. The thought process was this: We put people on our health plan after 90 days, andbeing able to take vacation early certainlycosts less than two weeks vacation. So why not?

14 Best Employers International Best Employerresearch reveals how organizations differentiate and achieve a competitive advantage through their people. The benefits of being a Best Employer are well documented, from improved retention to increased productivity. GeorgiaSimpson@TheCorporateClinic.com

15 Low EE Impact on Businesses According to surveys conducted by LSA Global Learning Solutions, lower employee engagement scores result in: 12% lower profits 19% lower operating income 28% lower earnings per share

16 Returns on High EE Higher employee engagement scores correlate to: 18% greater productivity 12% higher customer satisfaction 51% less voluntary turnover

17 Correlation Between Employee Engagement and Total Shareholder Returns The organizations that improve engagement during challenging times focus on a number of factors that differentiate them in the marketplace. These factors include: 1. focusing on long-term strategies eg good pension plans 2. demanding measurable actions, 3. involving all stakeholders, 4. understanding key employee segments, and broadening the range of assessment tools and analytics. GeorgiaSimpson@TheCorporateClinic.com

18 Correlation Between Employee Engagement and Total Shareholder Returns 5. What company stands for stated employer value proposition and consistency with day to day reality of work 6. Proactively respond to the environment and changing workforce needs 7. They evolve but remain true to the values that made them successful and keep them well positioned for success

19 Employment Engagement Drivers The EED models that impact performance are inter-related. They do not get the same results when applied in isolation. Assessment focus would be What really makes a difference to employees, i.e. impact analysis. Aim to identify and prioritize factors that drive engagement. GeorgiaSimpson@TheCorpor ateclinic.com

20 Approaches to Employee Engagement Noteworthy open to shift from traditional approach to managing employee benefits Employee differentiation based on performance Shift from equality to equity -rewarding according to contributions ateclinic.com

21 Top Employee Engagement Drivers 1. Career Opportunities 2. Brand alignment 3. Recognition 4. People/HR practices 5. Organisation reputation (in top 3 for North America) 6. Managing Performance (in top 3 for North America) 7. Pay (in top 5 for Asia) NB Drivers are also influenced by cultural context GeorgiaSimpson@TheCorpor ateclinic.com

22 Professional Liability or Errors and Omissions Risks This relates to injury or damage due to malpractice, or errors-and-omissions Distinguished from general business liability because of the specialized nature of the liability. If a business provides a service, it would be wise to consider professional liability insurance.

23 Professional cont d Persons requiring liability protection include - stock brokers -architects, -physician, surgeons, - lawyers, accountants, engineers, -insurance agents. Increasingly professionals in the information technology industry are exposed to professional negligence.

24 Professionals cont d Professionals have broad knowledge in their field and are expected to operate at a certain level of competence. If they fail to perform their duties in line with prevailing standards specific to their field they can be held responsible by law. Also called Errors and Omissions.

25 Risks related to Cyber Liability Definition: First and third party expenses resulting from internet, networks and computerised information assets Potential damages include: -loss of company s data and the cost to restore it, -the cost of defending against or settling a third party claim -the cost of cyber extortion, -damage to reputation, -the cost to notify individuals whose personal information may have been compromised and -the cost to pay for credit monitoring for those individuals if required by law.

26 Cyber Liability Risk Control Understanding firm s exposures Determine how to manage these exposures Centralize IT management and develop enforceable policies and procedures across your network. Monitor compliance with policy

27 Lessons from Japan for the Risk Alert

28 No damage but losses Inability to conduct businesses due to suppliers experiencing disaster Inability to access place of business Extra expenses to find alternate solutions Extra expenses to prove extent of loss Customers inability to take delivery Solution: Contingent Business Interruption Strategies

29 Test questions Do the processes improve compliance and access to government/government services? Do the RM practices facilitate proactive management decision-making Do they promote sound resource allocation Are they easily understood and used (plain language, user-friendliness)

30 Guidelines in selecting RM strategies Helps managers understand the context and implications of risk Demonstrates communication/involvement with stakeholders Facilitates cultural shifts and change management Builds on existing knowledge, lessons learned in the organization Considers opportunity costs Has a clear and potentially applicable accountability or governance framework Makes effective use of audit and evaluation resources Links horizontally in the organization Integrates well with the existing management framework, processes and practices

31 Ladies & Gentlemen THANK YOU!!!