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nies is estimated to be linked to the above factors. The essence of this book is to
protect this value by bringing together various elements of risk management into
a Sustainable and economic/enterprise risk management system. The sustain-
ability approach is summarised well by Patrick Cescau, Group Chief Executive
of Unilever:
“The agenda of sustainability and corporate responsibility is not only central to business
strategy but will increasingly become a critical driver of business growth¦ I believe that
how well and how quickly businesses respond to this agenda will determine which com-
panies succeed and which will fail in the next few decades.” (Speech by Patrick Cescau,
Group Chief Executive of Unilever, at the 2007 INDEVOR Alumni Forum in INSEAD,
Fontainebleau, France (25 May 2007))

The following framework can be used to review the chapter:
Identifying, trends, themes and risks;
Building the business case for action;
Implementing the business case; and
Monitoring and controlling.


Identifying trends, themes and risks
The farther backward you can look the farther forward you are likely to see. Winston
Churchill

We hope this quote rings true for the reader and that the case studies and news
items presented in this book help highlight risks that have occurred to others,
and the hazard of their reoccurrence. Traditional risk management is closely
linked to compliance and sustainability management is linked to having a more
predictive ability to stay ahead of the competitive environment. Many of the
hazards and risks we review are newly emerging and their frequency and sever-
ity are still unknown, we will bring greater clarification to future editions as
research becomes available.

Trends
Key trends are described in detail in Chapter 3 and with more specific reference
in each Chapter. In summary, it is noted that the level of hazards and risk is
increasing. The nature of the risk environment in which our organisations have
Part E “ Case Studies of Business Risks
614



to operate is changing as well with challenges beyond the reach of even indi-
vidual countries. This is exemplified by the fact that:
The “Doomsday Clock” of the Bulletin of Atomic Scientists moved its hands
forward two minutes from seven minutes to midnight to five minutes too,
with midnight marking global catastrophe. This is to reflect what they call
worsening nuclear and climate threats to the world.
An important trend on a global level, which we can respond to more directly, is
the increased demands from stakeholders like shareholders, investors, lenders,
governmental and non-governmental bodies. This trend is reviewed in Chapters
3 and 9 and discussed as a transparency theme in this Chapter. A sample of the
issues raised is that there are:

Increased governmental demands can be seen in the form of: corporate codes
of conduct; tax increases, new taxation like carbon taxes; waste duties; fuel
duties and other market mechanisms to drive organisations in the direction
that governments deem the public wants them to go.


Themes
Trust in organisations and business?
The issue or theme of ethical business practice has transcended most of this book™s
chapters. There is a real risk that the traditional trust in modern systems of busi-
ness and management is being lost. Businesses and politicians rate as some of
the least trustworthy entities in the world, whilst NGOs and campaigners rate
amongst the highest. There are key factors underlying this. No doubt however
future risks can be reduced by increasing the trust others have in your organisa-
tion. The Customer Trust Index contains a wealth of information, findings are:

Nine out of ten people say trust is very or fairly important when they decide
to buy products and services from a company. However the problem for busi-
ness is that whereas 57% say they are inclined to trust companies in general
this falls to a low of only 7% would trust on-pack information;
Ethical behaviour counts “ Advanced factor analysis across all 45 combined
drivers of trust and mistrust showed corporate responsibility to be the most
important overall driver; and
It is clear that getting the basics right gives companies a good start. Of para-
mount importance “ according to three quarters of people interviewed “ is
“keeping promises and delivering what it says it will.”

SERM has found that a key issue for companies is customer retention and that:
Having earned trust, over half of consumers (54%) would reward a company
by personally recommending them to others.
So the key to the modern business arena will be winning and keeping the
trust of consumers and “ as a result “ the wider society, which influences their
Chapter 24 “ Conclusions and future trends 615



views on many occasions. It is estimated that a unit of trust is ten times easier
to lose than to create; this is one of the key drivers behind reputation risk man-
agement as reviewed in Chapter 9.


Litigation culture
Part of the response to this reduction of trust in business is that there is a grow-
ing regulation, compensation and litigation based culture “ Legislative, regula-
tory and industry codes are increasing in number.
In the US the number of class-action lawsuits against US companies rose
sharply in 2004 according to a report by Stanford Law School and Cornerstone
Research, the “Securities Class Action Clearinghouse Report” cited a 17%
increase in the number of actions filed for 2004 and that the companies being
sued lost $169 billion in market value. This figure was almost treble the figure
for the previous year.
In the UK a recent litigation case highlights the trend of increasing fine lev-
els as US and UK authorities have hit British Airways with £270 m worth of
fines for colluding with competitor airlines over the imposition of fuel charges.
The UK™s Office of Fair Trading (OFT) fine (£121.5 million USD$ 246 million)
was over ten times the level of the previous highest fine. The U.S. Justice
Department levied USD$300 million against BA and also levied a US$300 mil-
lion (‚¬218.9 million) fine on Korean Air Lines Co. Ltd for colluding with com-
petitors to fix fuel surcharges on cargo shipments to the U.S.


Transparency
There are increased demands for greater transparency and accountability for
the business community to justify their license to operate:
Stakeholder involvement will continue for the foreseeable future through
their support for a wide range of standards, codes of practice, laws and regu-
lations covering the risk issues addressed in this book. There is confusion as
to the variance between them, which is why this book focuses on the issue of
risk which is common to all organisations. Current terminology varies as
widely as do the types of codes as in addition to: accountability, responsibility
and sustainability, there are also sustainable development; corporate gover-
nance, corporate responsibility (CR); corporate citizenship and the triple
bottom line! A small sample of the terminologies in use by key organisations
provides us with: the WBCSD referring to Corporate Social Responsibility;
the UN Global Compact on Responsible Corporate Citizenship; the OECD
Guidelines to Responsible Business Conduct; and AA1000 to Social & Ethical
Accountability;
There will be persistent calls to report verification and audit as well as the
holding of standards that indicate reporting proficiency; and
The volume and speed of media coverage will continue to increase: environ-
mental and health and safety incidents; the levels of fines, loss of reputation
Part E “ Case Studies of Business Risks
616



and financial impacts will both increase and become more apparent, as will the
corresponding measurement and reporting of benefits that are derived from the
good management of these risks.
Fortunately, SERM research has found that the world of business and
industry is not phased by this overall trend. The response has generally been to
get on with business whilst increasingly recognising that the issues represent
not only unparalleled challenges but also unique opportunities.

Partnerships
Today™s risks are arising from the same types of pressures as many before them,
from legislative and commercial or competitive drivers through to marketplace
(i.e. customer) pressures. The main difference is that the added pressure of the
risks arising from newer, often global, issues poses a potential threat to virtually
all industrial and commercial activity in the current climate of growing envi-
ronmental and social concerns.
Since many of these threats are deemed to be too large, complex or impor-
tant to just be left to the authority that is invested in governments, dynamic part-
nerships are important. This means working with government bodies, critics
and customers to sound out our organisation™s place within this bigger picture.
The involvement of individuals and business organisations is seen as para-
mount to achieve our goals of long-term survivability and the sustainability of
our societies and organisations within them. This is well phrased by Michael
Porter and Mark Kramer writing in the Harvard Business Review:
“Leaders in both business and civil society have focused too much on the friction between
them and not enough on the points of intersection;” and “The mutual dependence of cor-
porations and society implies that business decisions and social policies must follow the
principle of Shared Value” (Strategy and Society: The Link between Competitive
Advantage and Corporate Social Responsibility, December 2006).

At the macro level the risks we face as individuals and organisations are
too great for any of us to deal with individually and we will be required to work
with stakeholders increasingly to help reduce these risks.


Global problems requiring global strategies
“From an Asian perspective, I want to emphasise that there is no alternative
to the preservation and strengthening of the multilateral system. All
other solutions, including regional blocs and bilateral preferentialism, will
inevitably generate fewer opportunities for business “ especially for small
and medium enterprises in the developing economies “ less respect for rule
of law in international trade and more trade friction, leading eventually to
a significant decline in global economic growth.” Dr Victor Fung, Group
Chairman, Li & Fung Group; and Co-Chairman, The Evian Group, based in
Hong Kong.
Chapter 24 “ Conclusions and future trends 617



Risks
The significant problems we face cannot be solved at the same level of thinking we used
when we created them (Albert Einstein)



Total sustainability related risk
The SERM system of analysis has assessed the total organisational value at risk
from sustainability related risks is 12.5% of market value for the 500 largest
companies in the US and EU. The research from the issues quantified in this
book is broken down into the three main headings of sustainability, which are
then reviewed briefly.

Sustainability risk category Net risk to value

Economic and socio-economic risk 2.0%
Social and ethical risk 5.1%
Environmental risk 5.4%
Total Sustainability Risk 12.5%


Stakeholder and reputational risk (Chapter 9) is present in all these sections of
the book and accounts for about half of the total sustainability risk.


Economic aspects of business risk
There is an average of 2% of risk to market value from the risk issues we have
reviewed in Part B of this book. We have not included a review of many macro
economic risks such as currency fluctuations, interest rates et al, but have lim-
ited ourselves to those we feel have a direct impact upon organisations from a
sustainability related perspective.
We covered the key aspects of the emerging risks including: economic crime;
fraud; business interruption and disaster planning risk with crisis management;
stakeholder and reputation risk management; and business, marketing and new
technology related risk. These risks are in addition to the more standard risks asso-
ciated with business practice, accountancy and governance issues.


Economic and socio-economic risk Net risk to value Chapter reference

Economic crime, bribery & corruption 0.3% Ch 7
Business interruption n/a Ch 8
Shareholder and reputation risk Part of all risks Ch 9
Use of corporate power 0.4% Ch 10
Business practices 0.5% Ch 10
Corporate Governance n/a Ch 21, 22, 23
Marketing practices 0.4% Ch 10
New technology 0.4% Ch 11
Total 2.0%
Part E “ Case Studies of Business Risks
618



Social and ethical aspects of business risk
There is an average of 5.1% of risk to market value from the risk issues we have
reviewed in Part C of this book. Social risks are as varied as the communities
and cultural groupings from which they emanate. The risk to market value is
mostly from health & safety of staff and customer issues. A SERM system
includes a review of external issues such as product safety, human rights and
employment law.


Social and ethical risk Net risk to value Chapter reference

Community investment 0.3% Ch 12
Cultural due diligence n/a Ch 13
Human rights/resources (internal) 0.7% Ch 14
Human rights (external) 0.3% Ch 15
Health internal (workforce) 0.7% Ch 16
Safety internal (workforce) 0.5% Ch 16
Health external (public) 0.4% Ch 17
Safety external (public) 1.0% Ch 17
Historic liabilities from health and safety 1.2% Ch 17
Total 5.1%




Environmental aspects of business risk
There is an average of 5.4% of risk to market value from the risk issues we have
reviewed in Part D of this book. The term ˜sustainability™ often means a para-
digm shift towards a greater understanding of things in the direction of natural

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