Magazine article Risk Management

CEO Risk Management Mandate

Magazine article Risk Management

CEO Risk Management Mandate

Article excerpt

THE ANTICIPATION OF POTENTIAL RISKS TO THE FIRM IS A key responsibility of executive management. Stockholders expect their assets to be diligently protected from losses that could have been foreseen and avoided. Such loss can arise not only from recognized business risk but from the latent exposures inherent in corporate initiatives of all types, whether products, services, acquisitions, facilities or contracts.

Executive management seeks to ensure that all such exposures are not only identified but mitigated and where necessary funded. Stockholders have often sued corporate directors and officers in the wake of acquisitions undertaken without sufficient due diligence. Such suits have also arisen when a product or service has been offered to the public without risk management review and evaluation.

You need not look outside the firm to discover serious exposures. A major drain on corporate revenue is the cost of work-related injuries. Managing such costs requires extensive internal education and aggressive claims management. In recent years, the unprecedented frequency of natural and man-made disasters has served to highlight the potential risk of business interruption. Every chief executive needs to be able to demonstrate to stockholders that contingency plans have been implemented and tested so that critical businesses can be continued even after the loss of an entire facility.

The way in which the chief executive can properly begin to address all these issues is by dedicating sufficient internal resources to the core risk management function. This function must be as lean as any other in this era of reengineering and downsizing. The risk manager must carefully analyze whether or not certain functions can be more economically performed externally To the extent such services are derived externally, they must be closely monitored and evaluated on an ongoing basis. Insurance brokers and other more specialized vendors can often provide such resources on a fee-for-service basis. Specialty firms are sometimes more cost-effective as they can price their specific services without reference to unrelated overhead.

Risk management is an integral part of corporate management. The core risk management function, which must continuously interact with all business and support areas across the organization and throughout the world on the most sensitive internal corporate issues, can no more be outsourced than corporate management itself. …

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