According to the 2004 Protecting Value Study, a poll of 600 executives and investment professionals in North America and Europe, very few companies view management or employee malfeasance (3 percent) or terrorism (1 percent) as serious threats, despite highly publicized cases of improper management and employee practices and acts of terror.
More than two-thirds (69 percent) of CFOs, treasurers and risk managers at Global 1000 companies in North America and Europe view property-related hazards, including fires, explosions and supply chain disruptions, as the leading threats to top revenue sources. In sharp contrast, most investment professionals (79 percent) say non-property-related hazards, including pricing fluctuations, governmental/regulatory hazards and management/employee malfeasance, pose the greater threat.
Most CFOs, treasurers and risk managers (80 percent) rate their companies' ability to protect top revenue sources as "excellent" or "good," while nearly one-half of investment professionals (49 percent) rate companies' abilities as "fair" or "poor." The threats to companies' revenue sources have the potential to significantly impact operations, with a majority of CFOs, treasurers and risk managers (60 percent) reporting a major disruption caused by a top threat would "threaten business continuity" or cause a "sustained hit to earnings."
Approximately 90 percent of CFOs, treasurers, risk managers and investment professionals overwhelmingly agree that enterprise risk management should be and is becoming a board-level issue in both North America and Europe. European companies appear to be making more progress in this regard with 93 percent reporting that risk management is already a board-level issue at their companies compared with 65 percent in North America.
According to Ruud Bosman, executive vice president, FM Global, the results provide a revealing picture of how risks are evaluated by individuals responsible for maximizing the value of companies as well as those charged with analyzing financial performance and prospects for future growth.
"We believe that executives and investment professionals with the greatest understanding and appreciation for sound risk management programs have a distinct advantage over those that do not," Bosman said. "Companies and investment firms are increasingly beginning to recognize that effective risk management programs can help reduce quarter-to-quarter volatility in revenue and contribute to a company's financial performance."
Developing effective strategies to anticipate and manage risks are a first order of importance in today,s business environment, according to Randy Kroszner, professor of economics at the University of Chicago's Graduate School of Business. "The results of the study suggest that investment professionals would reward companies for more complete and detailed disclosures of how they identify and deal with major risks," he added.
Dr. Deborah Pretty, principal of Oxford Metrica, a United Kingdom-based independent advisory firm that analyzes corporate risk strategy, says risk management and its relationship with financial performance is a critical issue for corporate boards and investors. However, she said the results of the study "prompt questions relating to the extent to which shareholders' interests are aligned with those of corporate managers."
To that end, Bosman says companies "may want to enlist the help of their risk managers to help provide investment professionals with a more in-depth perspective of the risk management procedures they have in place to protect top revenue drivers and the value their businesses create."
To download an executive summary of the 2004 Protecting Value Study containing the complete findings, please visit www.protectingvalue.com.