Risk Alert or Risk Averse for

Business SustainabilityBusiness Sustainability

G. Simpson, FCII

Agenda

• Perspectives on Risk

• Emerging Trends on Risk Management

• RM and Sustainability

• Everything Matters• Everything Matters

• Employee Engagement

• Returns on Employee

• Business Liability Risks

• Lessons from Japan for the Risk Alert

The first step in the risk management

process is to acknowledge the reality

Perspectives on

Risk Alert vs Risk Averse

process is to acknowledge the reality

of risk. Denial is a common tact that

substitutes deliberate ignorance for

thoughtful planning

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 tied to board commitment and RM depth and

breadth in company

Business Risks, Sustainability & Development

http://reportingtostakeholders.blogspot.com/

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.

RM Definition

Risk Management spans policies, procedures,

and practices involved in identification,

analysis, assessment, control, avoidance,

minimization or elimination of unacceptable

risks.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.

RM leads to Opportunities

Risk management also means taking

advantage of opportunities and taking

risks based on an informed decision andrisks based on an informed decision and

analysis of the outcomes.

A good rule of thumb is to assume that

everything matters.

Quote

everything matters.

Richard Thaler

RM issues for the Risk Alert

• Employee Engagement levels

• Business Interruptions & or liabilities due to

indirect occurrencesindirect occurrences

• Cyber Liability

• Institution with systems and or culture that

fails to capture innovative possibilities

• Lived values as a Corporate Citizen

Employee Engagement cont’d

Leading companies focus on harnessing thediscretionary effort of employees. This hasmade the difference to how quickly somecompanies recover from the downturn.

Employee Engagement dropped from 60% in

2009 to 56% in 2010 in the regions

researched.

GeorgiaSimpson@TheCorpor

ateClinic.com

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 competitorscompetitors

• the total stock market index and posted total shareholder returns of companies with 65% or more EE was 22% higher than average in 2010.

• companies with low engagement (45% or less) had a total shareholder return that was 28% lower than the average

GeorgiaSimpson@TheCorporateClinic.com

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 lets them accrue it after three months. The

thought process was this:

“We put people on our health plan after 90

days, and being able to take vacation early

certainly costs less than two weeks’ vacation.

So why not?”

GeorgiaSimpson@TheCorporateClinic.com

Best Employers

International Best Employer research 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

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

http://soniajaspal.wordpress.com/2011/06/18/employee-disengagement-risks/

Returns on High EE

Higher employee engagement scores correlate to:

•18% greater productivity•18% greater productivity

•12% higher customer satisfaction

•51% less voluntary turnover”

http://soniajaspal.wordpress.com/2011/06/18/employee-disengagement-risks/

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 plansplans

2. demanding measurable actions,

3. involving all stakeholders,

4. understanding key employee segments, and broadening the range of assessment tools and analytics.

http://www.aon.com/human-capital-consulting/thought-leadership/compensation/report_global_trends_employee_engagement.jsp

GeorgiaSimpson@TheCorporateClinic.com

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 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

http://www.aon.com/human-capital-consulting/thought-

leadership/compensation/report_global_trends_employee_engagement.jsp

GeorgiaSimpson@TheCorporateClinic.com

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

Approaches to Employee Engagement

• Noteworthy open to shift from traditional

approach to managing employee benefits

• Employee differentiation based on

performanceperformance

• Shift from equality to equity - rewarding

according to contributions

GeorgiaSimpson@TheCorpor

ateClinic.com

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)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

• This relates to injury or damage due to

malpractice, or errors-and-omissions

Professional Liability or Errors and Omissions

Risks

• 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.

• Persons requiring liability protection include

- stock brokers

- architects,

- physician, surgeons,

Professional cont’d

- physician, surgeons,

- lawyers, accountants, engineers,

- insurance agents.

Increasingly professionals in the information technology industry are exposed to professional negligence.

• Professionals have broad knowledge in their

field and are expected to operate at a certain

level of competence.

Professionals cont’d

• 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.

• 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

Risks related to Cyber Liability

- 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.

• http://sandiegometro.com/2011/03/cyber-liability-managing-the-risks/

• Understanding firm’s exposures

• Determine how to manage these exposures

• Centralize IT management and develop

Cyber Liability – Risk Control

• Centralize IT management and develop

enforceable policies and procedures across

your network.

• Monitor compliance with policy

Lessons from Japan for the

Risk Alert Risk Alert

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 find alternate solutions

• Extra expenses to prove extent of loss

• Customers inability to take delivery

Solution: Contingent Business Interruption

Strategies

Test questions

• Do the processes improve compliance and

access to government/government services?

• Do the RM practices facilitate proactive

management decision-makingmanagement decision-making

• Do they promote sound resource allocation

• Are they easily understood and used (plain

language, user-friendliness)

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 • 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

THANK YOU!!!

Ladies & Gentlemen

THANK YOU!!!