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The Actuary The magazine of the Institute & Faculty of Actuaries

ERM is good for shareholders

Executives at major companies and investment professionals at the world’s leading investment firms hold starkly opposite views on the primary threats to companies’ top revenue sources, according to the 2004 Protecting Value Study published recently.Among the main findings:

  • More than two-thirds (69%) of CFOs, treasurers, and risk managers at Global 1,000 companies in North America and Europe view property-related hazards, including fires, explosions, and supply chain disruptions, as the leading threats to top revenue sources.
  • In sharp contrast, most investment professionals (79%) say non-property-related hazards, including pricing fluctuations, governmental/regulatory hazards, and management/employee malfeasance, pose the greater threat.
  • Despite highly publicised cases of improper management and employee practices and acts of terrorism, very few companies view management or employee malfeasance (3%) or terrorism (1%) as serious threats.
  • Most CFOs, treasurers and risk managers (80%) rate their companies’ ability to protect top revenue sources as ‘excellent’ or ‘good’, while nearly one-half of investment professionals (49%) rate companies’ abilities as ‘fair’ or ‘poor’.
  • The threats to companies’ revenue sources have the potential to have a significant impact on operations, with a majority of CFOs, treasurers, and risk managers (60%) reporting a major disruption caused by a top threat would ‘threaten business continuity’ or cause a ‘sustained hit to earnings’.
  • The majority of investment professionals (78%) indicate they ‘frequently’ analyse the potential risks to companies’ revenues and more than one-half (53%) rate the quality of information on potential risks contained in financial statements as ‘fair’ or ‘poor’. Additionally, most investment professionals (68%) rate stakeholders’ level of understanding of the top threats facing companies as ‘fair’ or ‘poor’.
  • Approximately 90% of CFOs, treasurers, risk managers, and investment professionals overwhelmingly agree that enterprise risk management (ERM) should be – and is becoming – a board-level issue in both North America and Europe. European companies appear to be making more progress in this regard, with 93% reporting that risk management is already a board-level issue at their companies, compared with 65% in North America.
    • To download an executive summary of the 2004 Protecting Value Study containing the complete findings, please visit www.protectingvalue.com.