M. MARSHMAGAZINE

Issue 3 — December 2014

INDEX

2 Insights on the market

4 Ebola: is it the next pandemic risk?

8 The state of the power market in Europe: the lost era of regulatory certainty

10 2015 political risk map highlights challenges for foreign investors

12 Arctic shipping: navigating the risks and opportunities

17 NAT CAT modelling - One piece of the jigsaw puzzle

20Employers still cite cost as a barrier to employee choice programmes, despite clear evidence of cost reductions.

22 Women in the labour force and economic growth in europe

25 How risk managers can become more valuable than ever

26 Managing operational risk

28 Risk management interest grows in strategic issues

30 The evolution of risk management in corporate business management

4After isolated emergence in the US last summer, the first Ebola incident in Spain and other suspected cases in Europe have triggered widespread public concern.

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THE EVOLUTION OF RISK MANAGEMENT IN CORPORATE BUSINESS MANAGEMENT

The current competitive environment is characterised by several key factors which have significantly influenced the risk-management activity of enterprises. Globalisation has played a central role in stimulating competition among companies operating with different legal systems, thus impacting heavily their costs of inputs (e.g. labor costs). In addition, the increase in trade worldwide and the concentration of production sites have led to a higher degree of correlation between economies across different countries and industries.

Nowadays, companies are required to have a greater ability in interacting with financial markets, in order to gain access to financial resources. Traditional markets are indeed much more demanding on risks evaluation, a central factor for the definition of a fair investment return.

The current context has three main implications:

• Companies’ top lines are becoming more and more volatile;

• The range of risks to be managed by enterprises is wider compared to the recent decades;

• Firms and funders evaluate their counterparts mainly on the basis of their ability to analyse and understand risks related to markets and industries they are operating in.

As a consequence, both companies and regulators are moving towards:

• A comprehensive risk assessment, in which new and alternative risks are included;

• A higher involvement of firms’ senior management aimed at achieving a broader risk evaluation;

• The inclusion of risk evaluation drivers in their yearly business plan.

As of today, risk assessment should refer to all components that might have an impact on the company performance. Those risks must be industry-related and can’t be limited just to financial and operational risks. Indeed, the current business environment pushes companies to assess the impact of risks generated by procurement or neighboring markets.

For sure some kinds of risks are shared across different sectors. For instance, the increase in online sales or, more generally, the web-dependency of corporate departments forces enterprises to focus on cyber risks.

Companies normally don’t have the competences and tools to mitigate all risks they are faced with, but, at the same time, they can’t ignore the exogenous ones which might significantly affect their business. With regard to this, we might refer to country-related risks for firms operating in unstable socio-political environments and especially to regulatory risks: as an example, the impact of ineffective authority policies for rivalry protection could seriously harm company’s business.

According to this analysis, risk management can’t be assigned to just one person, namely the risk manager. His figure should be considered more likely as a supporting management role, helping in identifying risks and setting up solutions to mitigate them, with any real “operational” power.

As a matter of fact, risk management requires a widespread attention across the company in which operational managers play a central role: by being fully committed to the company they can better evaluate risks and implement the correct actions.

The prevailing business culture foresees a consolidated methodology to mitigate financial risk, being this risk insurable and therefore manageable. On the contrary, operational risk is still relevant because of its complex nature: it requires a structured management approach and it can’t be entirely

Fabio Tomassini Director of Finance, Purchasing and IT, NTV S.p.A.

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EXTERNAL CONTRIBUTORS

transferred through any kind of collateral.In this perspective, the risk manager should develop a well-rounded expertise so as to increase the level of collaboration with the operational departments of the enterprise. The goal is to become a landmark in supporting and defining risk management actions, therefore representing an essential partner for the company. The main tasks of a risk manager generally involve a risk-assessment activity – relevant both as an opportunity for debating inside the company and as a statement for representing risks to the Board of Directors and to the supervisory bodies, being compliant with the legislation.

Risk-assessment has therefore become a critical tool in order to face risk management in a systematic and structured way, also crucial for allocating responsibilities in terms of risk reduction and risk mitigation.

From this point of view, risk-assessment must be considered as an integral part of the business plan, giving that the financial results - or rather, the expected return of the core business - have to be compared with the risk profile incurred by the company. The Board of Directors consequently ratifies the company’s business plan, knowing clearly its managerial implications so that managers are able to represent risk capital performances to partners and shareholders.

Several signals in the business environment provide a glimpse of firms’ reactions to the ever changing competitive market. It is vital to keep in mind that technological disruption and globalisation effects are pushing managers towards an holistic approach – the only way to manage effectively business affairs.

As we have seen in the 2000’s, when Chief Financial Officers were switching to a business partner perspective, or in recent years, in which Chief Information Officers have become Chief Digital Officers by applying the concept of digital to all business departments, especially marketing and sales, we can expect in the near future the transition of the Chief Risk Officer towards acquiring a more central role in the company. He will need a deeper expertise in order to make corporate risks easily measurable and understandable: the final goal of this process is to enable managers to undertake all possible actions that will mitigate, even if just partially, the risks run by the company.