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Enterprise Risk Management Intro

In the beginning…there were the high-stakes / high-visibility crises events that are now part of corporate legend -- the ExxonValdez tanker oil spill in Alaskan waters (in resource-rich Prince William Sound) just as the fishing season got underway -- the deliberate poisoning of over-the-counter Tylenol pain relief pills, resulting in the tragic deaths of retail customers trusting in the product (the most recommended by physicians, it was said at the time). 

There was the disastrous explosion of a Union Carbide chemical plant in Bhopal, India, killing many and injuring thousands of local residents – the various contamination of fruit juices, fast food offerings, and other food products over two decades (remember Odwalla Fruit Juice and the more recent Taco Bell incidents?) – and the near meltdown of the Three Mile Island nuclear power complex in the Pennsylvania state capital (Harrisburg).

There were major consequences that followed each crisis.  The ExxonValdez lawsuits grind on, almost 20 years later, with the stakes for each side totaling in the billions’ of dollars.  Tylenol was recalled and repackaged, and when another poisoning occurred four years later, the product was recast – creating challenges for many other over-the-counter remedy marketers (how do you not change your product packaging?) 

Union Carbide does not exist as the company of Bhopal infamy; the corporate leaders had to explain why – after talking up the benefits of having “sister plants” of Bhopal and West Virginia – the U.S. plant would not suffer the same consequences.  For a time, the U-C CEO was under a form of house arrest in India!  The American nuclear power industry has not recovered from the dramatic events of Three Mile Island – it didn’t help that the popular movie, “China Syndrome” starring Jack Lemmon and Jane Fonda opened to packed houses at the time!  (Think of the impact on national affairs of not having the option of economical nuclear power as America fights a hot war and battles insurgencies in some oil-rich nations of the Middle East.  And oil shoots to $70 a barrel)

 

Lessons? Leaders learned that a crisis can:

  • occur quite suddenly, sometimes with no warning;
  • invite outside scrutiny (media, government);
  • generate nasty headlines with lasting effects;
  • damage enterprise and individual reputations;
  • directly affect top and bottom lines of the business;
  • cause upheaval in the senior management ranks;
  • damage relations with employees, investors, analysts, regulators, suppliers, and customers;
  • be unpredictable but more often, quite predictable (and even avoidable);  and
  • take years to fully recover from.

These examples were true “crises,” and in their wake emerged today’s crisis management experts (staff, academics, consultants) formal organizational crisis management programs, crisis training, crisis simulations, [organized] methods of issue management; and now, “Enterprise Risk Management,” a multi-disciplinary, multi-functional approach to reducing, eliminating, mitigating, and dealing with the inherent risks to the enterprise.

The mark and measure of the Chief Executive Officer, some say, is his or her ability to manage risk and recover from a crisis, should one be unavoidable.

The best ERM programs of many companies are often directed from the top – the audit committee of boards of directors, the CEO, the chief financial officer, and the executive-level chief risk officer (a new title for many enterprises) are addressing risk management as part of their compliance with Sarbanes-Oxley and other regulatory schemes.

Risks abound today in a more globalized business environment – terror attacks, disastrous acts of Mother Nature, deliberate sabotage, whistleblowing, falling afoul of complex accounting rules, dysfunctional enterprise cultures, white collar crimes are but a few of the risks leaders must deal with.

The Editors focus on Enterprise Risk Management and the related functions and disciplines (of Crisis Management and Issues Management) as these relate to the Accountability and Governance of the enterprise (in all sectors of the economy). 

We welcome your views on Enterprise Risk Management – send emails to:  editors@accountability-central.com.


 The "Wei Ji" -- The Chinese pictograph (word) for crisis and opportunity.  It's often up to you which term should apply!

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