The value ambiguity of ERM: The case study of Pike River Coal Mine

Xia Meng

Post-graduate Student

Business School

Eastern Institute of Technology

Napier, New Zealand

marisameng@gmail.com

Noel Yahanpath

Senior Lecturer

Business School

Eastern Institute of Technology

Napier, New Zealand

nyahanpath@eit.ac.nz

Corresponding author: Noel Yahanpath, Private Bag 1201, Taradale, Napier, Ph

+64 6 974 8000, Fx +64 6 974 8910, Email NYahanpath@eit.ac.nz

II

The value ambiguity of ERM: The case study of Pike River Coal Mine

Abstract

Enterprise risk management (ERM) has drawn increasing interests in academia and

practice. At a theory level, many frameworks and standards have been developed.

However, in practice, relatively few organizations have successfully implemented

ERM and met expectations (Locklear, 2012). Two common explanations for ERM

failures are: firstly, firms fail to implement ERM appropriately and secondly, the

ERM framework has limitations in itself.

This paper provides further evidence supporting the second explanation. There are

many vague terms in current ERM frameworks, for example, risk appetite (Bromiley,

McShane, Nair, & Rustambekov, 2014; Power, 2009), but the critical term is “value”.

While ERM is generally accepted as a value-adding approach, there is no universal

interpretation on the term “value”.

This paper argues that the lack of ERM success arises from “value ambiguity” and, in

particular, whose value should be enhanced? Therefore, more specific questions are:

Managing risks for whose value?

Is it for shareholders or other stakeholders?

If for shareholders, is it for major shareholders or minor shareholders?

To evaluate these issues, this paper first reviews literature on ERM and then examines

the role of “value ambiguity” in the case study of Pike River Coal Mine.

This paper offers insights for ERM researchers and practitioners to reconsider current

ERM frameworks and the dangers of “value ambiguity” in implementing ERM

programmes.

Keywords: Pike River Mine, enterprise risk management

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The value ambiguity of ERM: The case study of Pike River Coal Mine

1 Introduction

Risk management has been practised for thousands of years; however, there is no

universally accepted risk management framework. Generally, risks can be managed in

two fundamentally different ways: one risk at a time or all risks together (Nocco &

Stulz, 2006). The latter approach is often referred to as Enterprise Risk Management

(ERM) and is viewed as the best practice (Locklear, 2012). Although ERM is

conceptually straightforward, its implementation is far more complex. At a theory

level, many frameworks and standards have been developed. However, in practice,

relatively few organizations have successfully implemented ERM and met

expectations (Beasley, Branson, & Hancock, 2010; Locklear, 2012).

Why is achieving effective ERM so hard? One popular answer is to blame

organisations and managements for failing to implement the framework properly. For

example, Fadun (2013) concluded that risk management failures can be classified as

operational failure and operators’ failure. Operational failure comes from execution of

ERM systems while operators’ failure refers to a firm’s managers’ misconduct.

However, these reasons are too broad. Basically, they can be used to explain any

business failures.

On the contrary, another explanation is that there is something wrong with current

ERM frameworks. Power (2009) argued that ERM is fundamentally “flawed” at the

level of design. Also, even the most widely accepted framework, which is developed

by the Committee of Sponsoring Organizations of the Treadway Commission

(COSO), is perceived to be too theoretical and contains overly vague guidance

(Beasley et al., 2010). Vague terms like “risk culture” and “risk appetite” are often

used in regulations and recommended procedures, but they are not explicitly

explained (Bromiley, McShane, Nair, & Rustambekov, 2014).

However, those terms are not the only ones that are not well defined. In fact, current

ERM framework fails to clarify its objectives. Risk management is well accepted as

an approach to add value, but whose value should be enhanced? This leads to a

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fundamental flaw in ERM frameworks; we have used the term “ value ambiguity” to

explain this shortcoming. One common approach is shareholder value maximisation

(SVM). SVM is often presented as the primary goal of risk management (Quon,

Zeghal, & Maingot, 2012). However, shareholders do not share equal rights and

usually the majority shareholders tend to have more influence, leading to inequitable

situations even among shareholders.

The other issue is stakeholder value maximisation. For example, the COSO ERM

framework is based on the premise that every entity exists to provide value for its

stakeholders (COSO, 2004). Similarly, the Casualty Actuarial Society (CAS) defines

the purpose of ERM is to increase the organization's short and long term value to its

stakeholders (CAS, 2003). Notably, shareholders are also stakeholders. Therefore, the

question remains whether ERM is for shareholders or for all stakeholders.

“Value ambiguity” adds more challenges in implementing ERM, as all the actions and

decisions made via ERM are supposed to align with an entity’s value. Different

interpretations may lead to a totally different focus in ERM implementations. Clearly,

in reality, conflicts between shareholders and even conflicts within shareholders are

inevitable. Thus, this paper aims to outline the limitations in current ERM

frameworks by arguing that the large portion of ERM failures arises from difficulties

in clarifying ERM objectives, which is defined as “value ambiguity”. To illustrate the

role of “value ambiguity” in ERM failures, a case study of Pike River Coal Mine is

used.

The remainder of this paper is organised as follows. The methodology is presented in

Section 2. A literature review of the current state of ERM is given in section 3 and

section 4 examines the role of “value ambiguity” in the case of Pike Rive Coal Mine.

Section 5 contains the summary and conclusion.

2 Methodology

The basic methodology used in this paper is a combination of historical case-study

approach and documentary research method. The documentary research method is

used to categorise, investigate and interpret the research interest from the most

commonly written documents, in both the private and public domains (Payne & Payne,

2004). This method is useful but sometimes even more cost effective than other

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methods (Gaborone, 2006). According to Bailey (1994), the documentary method

refers to the analysis of documents that contain information about the phenomenon

that researchers wish to study (Ahmed, 2010). For this research, data have been

collected from various published sources, including Tragedy at Pike River Mine: How

and why 29 men died, a number of financial reports, NZ Government Ministries, and

some newspaper articles and magazines and so on.

3 The current state of ERM

To understand the ambiguity surrounding ERM’s objectives and implementations, it

is necessary to have a broad understanding of how ERM emerged, why firms

implement ERM and current ERM framework’s limitations.

3.1 Emergence of ERM

Although risk management has been practised for thousands of years, enterprise risk

management is a relatively new concept (D’Arcy & Brogan, 2001). The term

“enterprise risk management” was first used by James Lam in the mid-1990s

(Locklear, 2012). In fact, risk management was originally developed by a group of

innovative insurance professors in 1950s (D’Arcy & Brogan, 2001). In 1963, Robert I.

Mehr and Bob Hedges published the first risk management text named “Risk

management and the Business Enterprise” (Head, 1982). In this text, the objective of

risk management was defined as “to maximise the productive efficiency of the

enterprise”. At that time this goal was mainly achieved by transferring risks to

insurance companies (Dickinson, 2001).

This risk-transferring tactic was sufficient until corporations were exposed to various

financial risks, such as volatility in exchange rates, commodity prices, interest rates

and stock prices, which cannot be transferred to insurance institutions. Since 1970s,

financial risk management began as a formal system practised by firms (Razali &

Tahir, 2011). At the same time, tools of financial risk management were developed by

investment banks to allow their corporate customers to hedge financial risks

(Dickinson, 2001). These financial products are forwards, futures, swaps and options

(D’Arcy & Brogan, 2001). They allowed financial institutions and other corporations

used them to manage risks in a similar approach as insurance risk management had

previously (Dickinson, 2001).

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Since mid-1990s, corporations realised the possibility to manage various risks at the

same time. Then, risk management shifted from traditional “piecemeal” risk

management to ERM, a systematic and integrated approach to manage total risks at

organisational level (Dickinson, 2001). This dramatic change emerges mainly from

the revolution in two fields, namely, corporate finance and governance.

In the field of corporate finance, the rise of shareholder value models facilitated the

emergence of ERM frameworks. More specifically, Dickinson (2001) highlighted that

shareholder value concepts inspired organisations to pay more attention to risk, which

has always played a central role in finance theory. Accordingly, financial

organisations and institutions began to emphasise on developing and practising risk

measurement tools, such as Value at Risk, to identify and assess the risk-return

relation underlying shareholder value. Power (2005) further defined this strand of

ERM as “the risk-based model of the firm”. In the other field, due to the collapse of

high-profile companies during 1990s, internal control became a central component of

corporate governance (Dickinson, 2001). Firms are required to report their internal

risk control systems either by voluntary codes or by legislation (Spira & Page, 2003).

This resulted in the emergence of the multitude of ERM frameworks, which is defined

as control-based ERM models by Power (2005). One classic control-based model is

COSO, ERM framework.

Collectively, ERM has experienced significant growth and evolution during the past

decades. According to Benabbou (2013), there are at least over 20 ERM standards and

frameworks worldwide. Yet, there remains no single, universally accepted ERM

framework (Locklear, 2012). Scholars and practitioners are still working on

developing and improving ERM frameworks.

3.2 Rationale behind ERM implementation

Despite of the absence of a universal-accepted ERM framework, the percentage of

organisations adopting ERM frameworks is growing (Beasley et al., 2010). However,

the rationale behind ERM implementation varies from organisation to organisation

(Muralidhar, 2010). Also, it is convinced that the reasons for implementing ERM

have impacted on ERM outcome (Hudin & Hamid, 2014). Thus, it is necessary to

understand why firms deploy ERM framework so as to investigate the lack of ERM

success.

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Generally, the drivers to implement ERM frameworks can be divided into two

categories: external forces and internal motivations. The first group is referred as to

pressures from external entities, including regulators, rating agencies, stock

exchanges, institutional investors, corporate governance oversight bodies and so on.

These parties require firms to be more transparent in corporate governance and to

strictly comply with laws and regulations. Meanwhile, firms are exposed to more

risks because of globalisation and fierce competitions (Dafikpaku, 2011). Therefore, it

is argued that the growing number of external risks speeds up the spread of ERM

practices (Hudin & Hamid, 2014).

Another set of drivers for ERM derives from organisations’ internal motivations. The

first motivation lies in the outlook organisations have towards risk (CAS, 2003).

Risks are viewed by organisations as opportunities rather than merely negative events.

Also, organisations have gradually recognised the importance of managed risks at an

enterprise level, that is, a holistic view of risks. The other main motivation is the

desire to leverage the benefits of effectively managing the enterprise risks. Some of

the benefits highlighted by COSO (2004) are:

• Aligning of risk appetite and strategy

• Reducing operational surprises and losses

• Identifying and managing cross-enterprise risks

• Providing integrated responses to multiple risks

• Seizing opportunities

• Improving deployment of capital

Notably, the list above can be endless as the ERM frameworks promise a balance

between risk and return in core business processes (Dafikpaku, 2011). Thus, The core

benefit is value creation. Nocco and Stulz (2006) argued that ERM creates value by

influencing companies at both a “macro” or company-wide level and, “micro” or

business-unit level. At macro level, value is created through establishing senior

management to quantify and manage the risk-return trade-off in the entire

organisation. At micro level, ERM ensures the commitment of all managers and

employees to carefully evaluate and manage risks. Similarly, Quon et al. (2012)

highlighted that ERM increases shareholder value from three aspects. First, efficient

use of capital is enhanced along with expenditures reduced. Second, better decisions

are made. Third, investor confidence is stabilised. Interestingly, while investors are

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indifferent to what kind of ERM system the firm uses, they will pay a 20 or 30 per

cent premium for a firm who manage risks effectively (Schneier & Miccolis, 1998).

3.3 Implementations and limitations of ERM

Not surprisingly, although organisations are driven to implement ERM for many

reasons, the fundamental driver is to achieve the benefits of ERM. Unfortunately,

studies reveal that most organisation failed to achieve the expected benefits by

implementing ERM systems (Locklear, 2012). A survey conducted by COSO

indicated that the state of ERM is relatively immature (Beasley et al., 2010). Only less

than a third of respondents describe their current stage of ERM implementation as

“systematic, robust and repeatable” with regular reporting to the board. Also, Quon et

al. (2012) investigated the relationship between ERM and firm performance for 156

non-financial firms, and they found that ERM information did not predict or have any

favourable impact on business performance. In contrast, Grace, Leverty, Phillips, and

Shimpi (2015) found that ERM practices across insurers result in statistically

significant increases in both cost and revenue efficiency. Interestingly, studies

conducted by insurance companies present a different picture. A report published by

Aon in 2010 showed that only 7 per cent of the respondents had been successfully

implementing ERM programs at a mature level (Locklear, 2012).

A great deal of research indicates the existence of limitations of ERM theory and

practice (see Locklear, 2012, Beasley et al., 2010 Shimpi 2015). In fact, ERM systems

developers are aware of some limitations in the current frameworks. For example,

COSO states in its framework that ERM cannot ensure the entity will always achieve

its objectives, because of the limitations, such as, judgement, breakdowns, collusion,

cost versus benefits, and management override (COSO, 2004). Notably, these

limitations are mainly behavioural, and it does not state any limitation in the

framework itself. However, Segal (2006) argued that ERM programs lack required

level of quantitative rigor, including lack of a business case for ERM, unclear concept

of “risk appetite”, incomplete integration of ERM into decision-making process,

inability to quantify operational risk, and misalignment of various ERM. Similarly,

Power (2009) emphasised that ERM is flawed at the design level. This argument is

illustrated by investigating the role of impoverished conception of risk appetite in

financial crisis. In addition, notwithstanding that the COSO ERM framework defined

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risk appetite as “the amount of risk that an entity is willing to accept in pursuit of

value” (COSO, 2004), there is no explanation for whose risk appetite accounts. More

importantly, the term “value” remains unclear in these definitions and frameworks.

Thus, this paper argues that the difficulties in implementing ERM lie in “value

ambiguity”. The large portions of ERM failures arise from the challenges in clarifying

ERM objectives. The related questions are:

Managing risks for whose value?

Is it for shareholders or other stakeholders?

Is it for major shareholders or minor shareholders?

If an entity fails to answer these questions above, its ERM implementation is not only

doomed to failure but also harmful to other parties’ interests. Even worse, the value it

pursues may end up at the expense of human lives. Next section will illustrate the

danger of “value ambiguity” by examining the role of “value ambiguity” in the case

of Pike River Coal Mine.

4 The role of “value ambiguity” in the case of Pike River Coal Mine

The explosion happened in Pike River Coal Mine, located in the West Coast of the

South Island of New Zealand, on 19 November 2010. It is one of the worst disasters

in New Zealand mining history. It took 29 miners’ lives and, following the explosion,

Pike River Coal Ltd (PRC), went into receivership, resulting in numerous losses for

stakeholders. In the aftermath of the tragedy, a royal commission was established to

investigate the causes of the explosion. Its report pointed out that, although PRC

operated in a risky industry, the health and safety risks were not well managed (Royal

Commission on the Pike River Coal Mine Tragedy, 2012a)

In fact, the PRC had implemented risk management framework, which is described as:

Pike River has developed a framework for risk management and internal

compliance and control systems which cover organisational, financial and

operational aspects of the company’s activities…there is a strong safety culture

which is fostered by management… detailed compliance programmes operate to

ensure the company meets its regulatory obligations. (Royal Commission on the

Pike River Coal Mine Tragedy, 2012b, p. 51)

From the above, it can be seen that PRC used a control-base approach to manage risks

collectively, which is somewhat similar to other ERM frameworks. As mentioned

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before, ERM is regarded as the best practice to manage risks. Why then, did PRC fail?

Regarding this question, some blame the lapses in governance and regulations from

government. For example, Ewen (2014) outlined the responsibility of the New

Zealand parliament for this tragedy in his book titled “Pike: Death by parliament”.

Meanwhile, the media and families of the victims have been closely following the

process of the Health and Safety Reform Bill (Bennett, 2014; Mitchell, 2015). It

seems that people have fallen prey to a legitimacy-driven style of risk management. In

contrast, we argue that this tragedy resulted from the “value ambiguity” in the ERM

framework. Particularly, like other frameworks, PRC’s framework failed to clarify its

objectives, which leads to the failure.

In PRC’s corporate governance disclosure statement filed with the New Zealand

Stock Exchange in September 2010, the role of ERM was described as “an essential

part of the company’s approach to creating long-term shareholder value” (Pike River

Coal Limited, 2010). Clearly, PRC’s objective is to create shareholder value, that is,

shareholder value maximisation (SVM). Notably, PRC stressed “ long-term” in the

above statement. It is often viewed that maintaining positive stakeholder relationships

provides maximum long-term benefits to shareholders (Gitman, 2011). Accordingly,

PRC’s goal can be expanded to all stakeholders, that is, stakeholder theory.

Thus, the perennial question comes again: whose value should be enhanced? This

dilemma represents the term “value ambiguity”, and there was no solution provided in

PRC’s framework. This unsolved question was left to intellectual judgements. Hence,

in terms of PRC, did it manage risks for shareholders or other stakeholders?

Clearly, the PRC failed to manage risks for other stakeholders, in particular,

employees. It is evident that all the risk related to health and safety was not well

managed. First, according to PRC’s risk management framework, the Health, Safety

and Environment committee was established to assess management and firm

performance in health, safety and environment matters, and it was supposed to meet

twice per year. However, by the time of the explosion the Health, Safety and

Environment committee had not met for 13 months (Royal Commission on the Pike

River Coal Mine Tragedy, 2012b).

Second, most of safety risks were not assessed at all. Even some obvious warning

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signals were constantly ignored. For example, Hawcroft Consulting International,

commissioned by PRC’s insurers, conducted a comprehensive risk survey for PRC in

2009 and 2010 and recommended a “broad-brush” risk assessment of the operation in

both of the two reports (Macfie, 2013; Royal Commission on the Pike River Coal

Mine Tragedy, 2012b). Its 2010 report identified a number of outstanding risks that

required assessment, including windblast, gas ventilation and hydro mining. The risk

of a methane gas explosion, which is the immediate cause to Pike River Tragedy, was

rated as possible. However, the reports were never discussed by the board and no

actions were taken, either (Royal Commission on the Pike River Coal Mine Tragedy,

2012b).

Third, PRC displayed a culture that put production before safety (Royal Commission

on the Pike River Coal Mine Tragedy, 2012b). It can be seen that many actions were

taken to meet production targets at the expense of safety. For example, although PRC

went through a number of exercises before the start of hydro mining and identified

some major weaknesses in the mine’s systems, it began hydro extraction without

addressing critical problems and implementing effective monitoring systems. Also,

while staffs were not given sufficient training and lack related experiences, PRC

offered a bonus incentive to workers if they could meet production targets by

September. Not surprisingly, workers made every effort to produce 1000 tonnes of

coal by the due date for the $10,000 bonus. Even when methane levels reached

explosive levels, the operation was continuing until the bonus had been achieved.

Again, after part of the roof in panel 1 goaf collapsed on 30 October 2010, resulting in

an explosive accumulation of methane, no formal investigation was taken.

In fact, PRC did receive advice on the potential of windblast and large goaf falls and

underground workers had been keeping reporting the incidents of excess methane for

months. However, PRC neither suspended hydro extraction nor effectively controlled

methane. Instead, Peter Whittall, PRC’s chief executive officer at that time, claimed

that “there have been no significant issues” at PRC’s annual general meeting on 15

November 2010 (Royal Commission on the Pike River Coal Mine Tragedy, 2012b, p.

167). Four days later, the large methane explosion happened and it took 29 miners’

lives.

Thus, it can be concluded that PRC did not manage risks for other stakeholders, and it

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can be assumed that its ERM framework is for the best interests of shareholders. Then,

did PRC manage risks for major shareholders or minor shareholders?

To answer this question, it is essential to examine PRC shareholders’ expectation, that

is, what they expected from investing in PRC. To begin with the largest shareholder

of PRC, which was New Zealand Oil & Gas (NZOG), at the time of explosion its

share was 29.34% (Pike River, 2010). What NZOG expected from PRC is supposed

to pursue profits and returns as other investors did. However, it appears that NZOG

did not have confidence in PRC. Tony Radford, chairman of NZOG and PRC director,

admitted that PRC was a non-core activity and NZOG intended to sell Pike

shareholding within a year or two of the floatation (Macfie, 2013). Therefore, one

could argue that NZOG focus was an immediate return rather than long-term value

creation.

How about other shareholders? The total listed ordinary shares had reached over 400

million and the number of shareholders was 8,748 at 20 August 2010 (Pike River,

2010, p. 38). It is impossible to get the exact information about each shareholder’s

expectation. Nevertheless, PRC’s performance had strong impact on these

shareholders’ earnings. For instance, fully paid ordinary shares are entitled to

dividends according to Pike River (2010), and dividends could not be paid unless

PRC had excess earnings. PRC’s only source of revenue was Pike River Coal Mine

and its profits were from the production of coal. Thus, it can be concluded that other

shareholders would like PRC to generate profits from the production, that is, long-

term value creation.

Obviously, PRC’s major shareholder did not share the same expectation as other

minor shareholders. So, how did PRC handle this complex situation? It seems that

PRC shifted its initial objective to meet its largest shareholder, NZOG’s expectations.

At the very beginning, Pike aimed to develop a safe, world-class coal mine, however,

it put more emphasise on the market than the project (Royal Commission on the Pike

River Coal Mine Tragedy, 2012b). As stated by Behre Dolbear Australasia Pty Ltd,

“there is a lot of effort being expended on presenting the project to the broking

community” (Royal Commission on the Pike River Coal Mine Tragedy, 2012b, p. 42).

As a consequence, PRC had increased the number of its shares to over 400 million by

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2010 from 87 million in 2007 while the first coal production was delayed from 2008

to 2010. Interestingly, NZOG did not increase its shareholdings in PRC. Instead, it

provided PRC capitals in terms of convertible bonds and short-term loans and became

PRC’s shareholder and secured creditor. As creditors generally share fewer risks than

shareholders, it can be argued that PRC had created value for NZOG through

mitigating NZOG’s risks.

In contrast, it seems that PRC had ever generated value for other shareholders, as

PRC had been loosing money since IPO. In 2007, it recorded a loss of $0.88 million

and the loss increased to $1.14 million by 2008. Next year, the number rocketed to

$13.02 million. It further tripled to $39.3 million in 2010 (Royal Commission on the

Pike River Coal Mine Tragedy, n.d). After the explosion, PRC went to receivership

and was delisted from NZX. Even worse, when the receivers appointed on 13

December 2010, PRC only had $10.9 million cash on hand (PWC, 2011). To date,

PRC have not paid all secured creditors, and there is unlikely any payment available

to shareholders (PWC, 2015).

From the above discussion, it can be concluded that PRC managed risks for its largest

shareholder, NZOG, rather than minor shareholders or other stakeholders. Although

PRC had defined its objective in its ERM framework, which is “to create long-term

shareholder value” (Pike River Coal Limited, 2010); it failed to clarify whose value

should be enhanced, like other ERM frameworks. Because of “value ambiguity” in

PRC’s ERM framework, PRC’s ERM implementation resulted in numerous losses to

minor shareholders and it end up at the expense of 29 miners’ lives. Thus, the tragedy

at Pike River further illustrates the dangers of “value ambiguity” in current ERM

frameworks.

5. Summary and conclusion

Risk is an integral part in business world and daily life. Although risk management

has been practiced for a long time, ERM is a relatively new concept. ERM is referred

to as a systematic and integrated approach to manage total risks at organisational level

and is listed ERM as one of the “breakthrough ideas for 2004” (Bromiley et al., 2014).

The revolution in corporate finance and governance since 1990s leads to the

emergence of two strands of ERM frameworks, namely, the risk-based model of the

firm and the control-based model (Dickinson, 2001; Power, 2005). The most widely

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accepted ERM framework developed by COSO belongs to the latter category;

however, there is no single, universal accepted ERM framework.

The popularity of implementing ERM in business world derives from external forces

and internal motivations. Ultimately, the core driver is to leverage the benefits of

ERM implementations. However, studies from both private sectors and academic

researchers showed that a significant amount of organisations cannot realise these

benefits by adopting ERM frameworks (Locklear, 2012). Two common explanations

to ERM failures are: firms fail to implement ERM appropriately and there are

limitations in ERM framework itself. This paper agrees with the latter view. There are

many vague terms in current ERM framework, e.g. risk appetite (Bromiley et al.,

2014; Power, 2009), but the critical one is value. This paper argues the difficulties in

implementing ERM lie in the “value ambiguity”, that is, whose value should be

enhanced? The large portions of ERM failures arise from the challenges in clarifying

ERM objectives.

It is generally acknowledged that ERM creates value. However, current ERM

frameworks fail to define creating whose value. From corporate finance perspective,

the goal of the firm is to maximise shareholder wealth while satisfying other

stakeholders is considered as part of the firm’s social responsibility (Gitman, 2011;

Sundaram & Inkpen, 2004). Meanwhile, as shareholders are stakeholders, the goal of

ERM can be expanded to all stakeholders. However, there are inevitable conflicts

between shareholders and other stakeholders. Even within shareholders, various

interests exist. Because current ERM frameworks fail to instruct organisations to

clarifying their objectives related to value, effective implementations are hard to

achieve.

This paper used the case study of Pike River Coal Mine to illustrate this important

shortcoming, “value ambiguity”, in ERM. PRC had implemented an integrated and

control-based ERM system and aimed to “create long-term shareholder value”.

However, it ended up with focusing on creating short-term value for largest

shareholder, NZOG. First, it put huge efforts on raising capital instead of the project

itself, because NZOG seek an immediate return. As a result, it transferred NZOG’s

risks to other shareholders. Second, the interests of other stakeholders like employees

were ignored. Consequently, safety risks were never well managed and critical risks

13

had never been properly assessed. Eventually, the mine exploded. It resulted in

unrecoverable costs to PRC shareholders, especially those with minor shares. Also, it

took 29 workers lives and left enormous harm to victims’ families. The “value

ambiguity” in ERM enabled PRC to focus on largest shareholder’s short-term value

and at the expense of employees’ lives and minor shareholders’ wealth. Thus, it is

evident that “value ambiguity” in current ERM frameworks can lead to failures in

ERM as well as harm other stakeholders.

In summary, this paper provides insights for ERM researchers and practitioners to

reconsider current ERM frameworks and highlights dangers of “value ambiguity” in

implementing ERM programs. It also offers another perspective to investigate what

went wrong at Pike River.

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