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Corporate Challenge: Exceeding the Expectations of Your C-Suite
Presenters: Bruce Zaccanti and Valerie Franco
Panelist: Jeff Tetrick
29 April 2014
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Housekeeping This is an interactive session. Please share your insights!
Please place your phone in silent mode.
Welcome!
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Speaker Backgrounds
Learning Objective 1: Facilitating Communication Throughout the Organization
Learning Objective 2: Embracing the Changing Landscape
Learning Objective 3: Being the Risk Management Corporate Champion
Learning Objective 4: Developing as a Risk Manager
Wrap-up and Questions
Appendix – Summary of EY CFO Survey Results
Agenda of What to Expect
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Valerie Franco, MBA
6 Years, Vice President of Risk Management, Lowe’s Corporation
1 Year, Director of Risk Management, Lowe’s Corporation
1 Years, Director of Claims Services, Strategic Risk Solutions
4 Years, Director of Client Services, Strategic Risk Solutions
MBA from Belmont University, Nashville, TN
Adjunct Professor – University of North Carolina
Speaker Backgrounds
Bruce S. Zaccanti
12 Years, Partner and National Practice Director of the Insurance Risk Management and Claims Practice EY
7 Years, National Practice Director at a Big Four Firm
4 Years, Corporate Director of Insurance and Risk Manager
3 Years, Large TPA Firm, National Claims Service Rep, Director of Quality and Compliance Audit
2 Years, Intellectual Property Consultant
Business Insurance Risk Manager of the Year Honor Roll, 1995
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Jeff Tetrick, CPA, AIF, MBA
25 Years, CFO, Pinnacol Insurance Oversees Financial Reporting, Business Planning, ERM, Audit and Actuarial Functions
4 Years, Vice President Group Operations, Capitol Life Insurance.
4 Years, Senior Vice President, Preferred Benefit Services
3 Years, Controller, Denver's Health Care United
6 Years, Public Accounting at EY, Life Insurance Focus
Board Member of Integrated Benefits Institute and Pinnacol Foundation
Panelist Backgrounds
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Risk Management Maturity Model – Tactical to Integrated
Regardless of the organizational structure, corporate risk management needs to penetrate all levels of the organization.
Thre
e D
imen
sio
ns
Front Line Operations
Tactical Risk Management
Integrated Management
Board / Executive Management
Perform Oversight ► Sets the “tone from the top” ► Establishes risk appetite and strategy ► Approves the risk management framework, methodologies, overall policies, roles and responsibilities ► Leverages risk information into decision making process. Accepts, transfers or mitigates identified risks ► Evaluates BU activities on a risk-adjusted basis
Coordinate with Other Management Areas ► Contract and indemnity lease review ► Loss control and safety oversight ► Non-insurance risk transfer ► Risk financing alternatives
Compliance
Interpret and Address ► Legal/ regulatory environment changes ► Regulatory issue advisement ► Compliance techniques and strategy planning ► Policies and procedures development ► Risk assessment based compliance testing ► Compliance monitoring
Manage Insurable Risk ► Insurance procurement ► Certificate of insurance management ► Claims management ► Brokers, carriers, and TPA oversight
Business Unit and Employee Participation ► Administration of and adherence with risk management policies ► Risk and loss identification, management, mitigation, and upward reporting ► Loss and incident data tracking
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Board of Directors
C-Suite
CEO, CFO, COO, CAO, CIO, CRO, etc.
SVPs and VPs
Human Resources, General Counsel, Treasury, Finance, Manufacturing, etc.
Director/Managers
Risk Management, Logistics, Sourcing, etc.
Employees/Staff
Common Communication
Gaps
Communication should flow
between all levels of the
organization and across levels,
although communication does not always
flow in both directions.
The Risk Management Messaging Challenge
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REAL ESTATE PURCHASING
TRANSPORTATION ENGINEERING
PRODUCTION
SAFETY
INSURANCE
COMPANIES
BROKERS
PUBLIC
RELATIONS
MARKETING
INVESTOR
RELATIONS
RESEARCH FINANCIAL
LEGAL
Risk Management
Functions
Risk Management Interdepartmental Communication
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Know the C-Suite’s top priorities and what will make them successful. According to EY surveys, C-Suite needs include:
• Trusting the numbers
o Example: Competing priorities exist and anecdote wins the day until actual data analytics are presented.
• Providing insight
o Example: Communicating value of carrier relationships, etc.
• Getting your house in order
• Funding organizational strategy
o Example: Optimization modeling to consider the best use of capital.
• Developing business strategy
• Communicating to the external marketplace
Closing the Communication Gap
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A leading practice Risk Manager and Risk Management Department:
• Masters the Core Duties and Functions to build credibility through competencies
• Knows the Products, Services, Short-Term/Long-Term Strategies, and Corporate Risk Appetite
• Develops Channels of Communication Based on Understanding of Organization’s Needs (Formal and Informal)
• Evolves into the Corporate Champion of the Organization’s Risk Management
• Obtains C-Suite Buy-in and Leads Risk Management Steering Committee
What Does This Mean for The Risk Manager and Risk Management Department?
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• Total Cost of Risk (TCOR) Analysis over 5 Years o Calculate TCOR and year over year cost of risk (COR) and identify trends
o Illustrate the COR as percent of revenue
o Benchmark the COR relative to competitors
• Cost Projections for the Fiscal Year
• Claims Data Analysis o Identify sources and causes of claims
o Identify claim counts and calculate percentage of claim dollars by claim type
o Summarize total claim dollars/or claim counts by line of coverage for the previous year compared to past four years by quarter
o Describe 10-15 largest claims in company history or currently reserved
What Can Risk Management Deliver to Management?
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• Insurance Schedules o Provide current and historical schedules of insurance coverage by line
o Include policy periods, deductibles/retentions, limits, premiums
o Describe relevant coverage enhancements and list coverage exclusions
o Provide insurance company and broker information for policies
• Risk Management Organization and Mission o Outline risk management objectives and summarize relevant
accomplishments
o Share organizational chart of risk management group
• Compliance Support
What Can Risk Management Deliver to Management? (Continued…)
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• Shift from Traditional Risk Management to Enterprise Risk Focus o Explore a variety of techniques to avoid, mitigate, transfer, and finance risks
o Address risks associated with the evolving corporate environment
– Intellectual Risks – branding, information security, privacy
– Human Capital Risks – talent sourcing, human life and worker safety, liability issues
– Advanced Technology Risks – electronic transactions, e-mail, privacy, data storage, etc.
– Reengineering – consolidation of functions that expand personnel roles (i.e. risk management takes on environmental management; safety and wellness; etc.)
What Can Risk Management Deliver to Management? (Continued…)
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o Minimize disruptions and facilitate recovery through business continuity planning
o Identify new exposures that will require additional strategic planning and solutions
– Emerging Risks – terrorism, weather disasters, pandemics, energy, etc.
– New Products and Services
– Globalization – political risks, legal/regulatory risks, talent sourcing risks, etc.
What Can Risk Management Deliver to Management? (Continued…)
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What are top priorities and risks within your organization?
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Risk Identification for an Organization
PURE - The risk involved in situations that present the opportunity for loss but no opportunity for gain.
FINANCIAL - Uncertainty about an event under consideration that could produce either a profit or a loss.
STRATEGIC - Exposure to uncertainty arising from long-term policy decisions.
INSURABLE RISKS These are typically pure risks. Elements of insurable risk
include:
The loss is not catastrophic.
The loss must be unexpected or accidental.
The loss produced must be definite and measurable.
A significantly large number of homogeneous exposure units to make the losses reasonable predictable.
OPERATIONAL - The risk of human, process, system, or technological failure as well as risks from external events.
Organizations must understand their risk exposures (unique, market-specific, sector-specific), current issues, causes of loss, control failures, and activity impacts in order to properly identify, assess, and manage risk.
?
ENTERPRISE RISKS These encompass all risks faced by a business and may be present in any financial or economic cycle.
EMERGING RISKS These risks are a subset of enterprise risks whose impacts on a Company’s financial strength, competitive position or reputation are time-boxed to occur within the next five years. These risks may or may not be insurable.
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Changes in legislation and regulation
INSURABLE RISKS
Cyber Crime
ENTERPRISE RISKS
EMERGING RISKS
Labor Shortages, Cost Fluctuation, and Succession Planning
Market Stagnation or Decline
Terrorism
Reputation/ Brand Risk
Intensified Competition
Operational Risks (Quality, Execution, Supplier Issues)
Inflation and Deflation
Supply Chain
Fire, Explosion, Disaster Recovery
Quality Deficiencies
Pollution
Theft, Fraud, Corruption
Credit Availability
Power Blackouts
Sustainability Environmental Changes Health Issues and Pandemics
Technological Innovation and Intellectual Property
Political, Social Upheaval, and War
What Are Today’s Greatest Risks?
Business Interruption Cyber Crime Pollution
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How are domestic and global exposures impacting your organization?
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Integrating Risk Management – The Risk Steering Committee Transformation
• Why is a Risk Steering Committee fundamental to a leading practice department?
• Creates open channels of communication
• Enables the organization to identify cross-risk issues
• Creates debate and consensus for addressing risks
• What are examples of cross-risk issues? • Dealing with supply chain risk
o How should exposure be quantified?
o What are risk mitigation strategies?
o What is the organization’s risk tolerance?
• Other Examples?
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Who? What are the roles? Why are they integral?
Board of Directors
Chairman, Inside Director (s), Executive
Director(s); these roles may be filled by
the C-Suite
The Board protects the financial interests of the
organization and will be a key participant in the
risk management planning and insurance
purchasing meeting.
C-Suite CEO, CFO, CAO, CIO, CRO, CHR, etc.
C-Suite buy-in is key for strategic, financial, and
operational changes. This group has close access
to the Board.
Department Leaders
Treasury, Finance, General Counsel,
Human Resources, Manufacturing,
Logistics, Real Estate, Procurement,
Sales, etc.
Management has specialized insight into the
administration of policies, practices, and
procedures of the organization.
Managers/Employees Risk Managers, etc.
These personnel have the closest ties to
operations and client relations. They can roll out
education and acceptance of new policies and
changes that impact staff.
Who Should Attend?
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Chief Executive Officer
Chief Financial Officer
Chief Operating Officer
Chief Information Officer
Chief of Human Resources
Chief Customer Officer
Sustainability Financial Crises Supply Chain Disruption
Cyber Crime Labor Wrong Price Perception
Sustainability risk appetite aligned to organization’s corporate strategy
Risk culture, risk appetite, and metrics established; leadership restructured; defined roles/ responsibilities; and reporting/ feedback loop utilized
Strategic sourcing with manufacturers and/or wholesalers; legal, financial, and risk management leading practices followed
Physical and electronic security measures employed; electronics/ data usage policy and privacy guidelines administered
Safety and industrial hygiene policies administered; recruiting and employment rewards strategy reviewed ; time management system utilized; risk transferred where applicable
Assess costs and profit margins and balance against customer demand, competitor offerings, and other market activity
C-Suite; Management; Risk Management; Operations; Employees
Board of Directors; C-Suite; Finance
Legal, Finance, Procurement; Operations; Risk Management
C-Suite; Risk Management; Legal; Operations; Employees
Human Resources; Legal; Risk Management; Operations; Employees
COO, Finance, Operations, Employees
Publicize sustainability mission through organizational kickoff and progress updates
communicate and consistently administer risk practices; create and/or expand roles as needed; utilize liaisons at different management levels
Plan for sources, legal obligations, and financial liabilities as well as risk transfer where possible
Share policies throughout the organization; administer policies stringently; hold parties accountable
Communicate, perform checks and balances, and review the administration of organization policies; utilize third party solutions; transfer risk where possible
Utilize pricing/ performance analytics, obtain competitive information at the customer level Execution
Solution(s)
Collaboration
Risk
Collaborate and Solve Cross-Risk Issues
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Corporate Profile as of January 2000
Sales: $18.8B
Employees: 86,160
Stores: 650 stores
Corporate Profile as of January 2012
Sales: $50.5B
Employees: 245,000
Stores: 1,825 stores
Founded in 1946 in Mooresville, NC, Lowe’s has grown from a small hardware store to the second-largest home improvement retailer worldwide. Today, Lowe’s has stores in the United States, Canada, and Mexico that stock 12 product categories and more than 40,000 products. Lowe’s has 500,000 items available online and 500,000 more products available by special order.
The Lowe’s Corporation Success Story – Then and Now
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Case Study: A Risk Manager’s Career Progression • Identified loss trends and opportunities to improve client’s claims experience
• Reduced Lowe’s claim costs
• Honed technical and financial acumen through ongoing education and an MBA
• Managed adjusters at Lowe’s TPA vendor
• Continued to add value through claim management results
• Implemented quality and cost containment programs.
• Hired to oversee insurable risk and claims functions at Lowe’s
• Managed team of 17 Risk professionals
• Continued to add value through insurance program review, procurement, financing, and administration
Director of Client Services Specialty Risk Services
Claims Operations Director Specialty Risk Services
Director of Risk Management Lowe’s
• Currently oversee enterprise risk management transformation at Lowe’s
• Utilize operational knowledge of the organization and relationships to provide a strategic approach to risk management
Vice President, Risk Management Lowe’s
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• Milestones and Key Successes o Maturity of ERM Program
o Addition of Business Continuity Function
o Evolution of claims programs through in-sourcing
o Addition of Enterprise Information Governance
o Launch of Governance, Risk and Compliance function
• How was support of Senior Management Built? o Meet one-on-one with executives to discuss risk topics and concerns
o Have time with the CEO and staff on a regular cadence to engage them in risk assessment, mitigation strategies and identification of emerging risks.
o Be a trusted advisor that helps move the business forward as opposed to slowing progress
The Department’s Evolution
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• Methods for Leading Steering Committee o Provide analytics to support decisions and recommendations
o Educate on the nuances of insurance markets and reasons for movement in the market
o Illustrate the value of the ERM process and enlist them as sponsors to drive a risk-aware culture
The Department’s Evolution (Continued…)
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• Facilitate Communication Throughout the Organization
• Embrace the Changing Landscape
• Be the Risk Management Corporate Champion
• Develop as a Risk Manager and as a Department
Recap of Key Takeaways
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According to EY surveys, C-Suite needs include:
• Trusting the numbers
• Providing insight
• Getting your house in order
• Funding organizational strategy
• Developing business strategy
• Communicating to the external marketplace
Appendix – Summary of EY CFO Survey
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Appendix – Trusting the Numbers
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Appendix – Providing Insight
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Appendix – Getting Your House in Order
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Appendix – Funding Organizational Strategy
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● Translating corporate goals into a clear strategy
● Identifying financial and risk issues in relation to corporate strategy
● Delivering a workable strategic plan within known constraints
● Thinking creatively/conceptually strong
● Analyzing portfolio of opportunities
● Visionary/story-teller ability to build trust and motivate people
● Effectively communicating financial and risk issues to C-suite colleagues
● Providing robust financial challenge at C-suite level
● Strategic and operational planning
● Knowledge of the organization's business
● Detailed knowledge of products/service lines
● Business model design
● Scenario planning
● Good overview of the industry structure and challenges
● Strategic frameworks and theory
● Awareness of the market and commercial environment
● Aware of industry and organization risk profile
● Awareness of IT as an important business enabler
● Strategy development
● Development and implementation of business plans
● Monitoring achievement of plans and targets and taking corrective actions where required
● Operational and financial risk management
● Product and market development
● Chief executive officer, chief operating officer, chief information officer
● Business unit heads, risk director, marketing director, HR director, strategy director
● Corporate development officer
View More from the EY Survey at http://www.ey.com/GL/en/Issues/Managing-finance/CFO_overview
Developing Business Strategy
Core Skills
Core
Knowledge
Key
Relationships
Key
Experiences
Appendix – Developing Business Strategy
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Appendix – Communicating to the External Marketplace