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Company Management and Risk Management in the 21st century
The recent decade has seen a reduction in the market value of many of the largest companies across the globe, with losses often a result of the failure to predict, hedge, and manage various risks.
Externally-driven losses are often an inevitable fact of life, and the failure to design a strategy to manage unexpected scenarios may make the situation even worse. Moreover, some losses are the result of takeovers that may appear promising at first, but eventually turn out to be an unproductive expense.
This actually means that businesses with a reasonable risk management strategy, unlike their competitors, can protect and increase their market value. In this rapidly changing environment, risk management is one of the most important tasks for executives and those in the boardroom. Regulators and stock exchanges continue to come up with new disclosure and listing regulations, requiring more detailed information about the existing corporate risks and risk management methodologies.
This environment may eventually have an impact both on the existing complex relationship system in which executives operate and on the role they play in interacting with boardroom members, shareholders, and various internal and external stakeholders. It’s still too early to talk about the end of the 'almighty' executive. However, it seems to stand to reason that corporate executives could be taking more focused efforts and building up consensus and communication.
The inevitability of risk renders it necessary for companies to abandon their risk-by-risk management practices and set up functions responsible for integrated risk management. While risks cannot be removed completely, businesses shifting from traditional risk management practices to more integrated risk controls would be better positioned to prevent, minimize, and offset losses in market value.
Today, the constantly changing market environment is a source of serious concern for many business executives. Despite this, some companies have only started considering methods to address exposures.
However, companies may need a better understanding of the real risks before taking action. To address this need, Deloitte and Deloitte Research have analysed potential risks that may lead to a significant reduction in share value. The analysis covers the experience of hundreds of the largest international companies over the last decade. While some of the analysis results (for example, the consequences of the 9/11 terrorist attack) were quite predictable, others were quite unexpected. We have published these results in a report titled How to address the threat of decreasing share value.
Research has shown that risk may come from anywhere and that certain circumstances may have a ruinous effect on business, rendering some companies incapable of absorbing losses. The report by Deloitte Research discusses share value exposures and methods to address them.
Please see the attached PDF file for more details.
About the project
Deloitte Research is a network that brings together experts in market research, consulting and accounting as well as academic researchers and IT professionals. Deloitte Research offers practical innovative solutions to improve operational performance in the form of detailed publications, features, reports and commentaries in which it identifies, analyses and explains aspects that define the current and future shape of business.
This new project is a result of collaboration between Deloitte professionals. It was designed for Deloitte executives attending the 2005 World Economic Forum in Davos. Please the attached PDF file for more details.
About Deloitte Research