I wish I could hear and read this more often and louder anyway.

Back to 2006, while giving a speech at the World Economic Forum, William Parrett, CEO at Deloitte, stressed the importance of developing new risk management strategies for corporations. He indicated that far too many companies still define the threats they face too narrowly and remain focused primarily on addressing only financial risks.

“One effect of globalization has been that risk of all kinds — not just fiscal, but also physical — have increased for businesses, no matter where they operate,” said Mr. Parrett. ”Information travels far and fast, confidentiality is difficult to maintain, markets are interdependent and events in far-flung places can have immense impact virtually anywhere in the world. A broader framework for defining and managing the variety of risks will be necessary if corporations are to mitigate the threats they face, assure sustainability and deliver value to their shareholders.”

The ongoing study of business leaders uncovered four considerations that are top of mind, as they review and upgrade security and risk management, including:

• Fostering a holistic and integrated risk management culture that features a chief security officer and that extends across the entire organization.

• Imagining the unimaginable, incorporating into risk positions the potential impact of low probability events and adding “stress test” models to risk-evaluation tools.

• Appreciating the significance of anti-Western sentiments, recognizing that corporations are on the frontlines of global influence and outreach.

• Identifying best practices as they emerge and putting in place the planning, analysis, monitoring and human resources necessary for their implementation.

“Clearly, there are additional expenses in defining risk more broadly and extending preparedness to address more possible events, but such an expenditure should be viewed as an investment that can reap great rewards when the unforeseen or unexpected happens,” he said. ”For management and boards of global corporations, risk management must now become an essential part of preserving and protecting shareholder value and thus an area where they should focus a good deal of their attention. They also need to do a better job at monitoring these intangibles.”

Being myself involved in this field of business, I don’t see much changes in corporations’ attitude toward risk since this speech was delivered to the world top executives in 2006, except maybe for a few of them operating in really harsh conditions or dangerous countries, where risk is to be taken as physical risk.

I am often advising my clients to integrate the Risk function in the company organization the same way they do for Marketing, Sales or Operations i.e. a new kind of transverse position, able to cove every aspect of the business acting on behalf of and reporting to the board, not less.

The current credit crunch conditions have given financial establishments a new and sudden awareness of the necessity of having financial Risk Managers on their payroll.

I wish it could be the same for every non-financial corporations as well, operating in sensitive business environments.

I start this blog with a few thought about the Chinese conception of Risk Management and the consequences this has for large consulting companies which stepped in China, thinking it should be a new Eldorado… and for me !

I came across a post from Paul Denlinger on China Vortex that points out why being a Risk Professionals in China is tough and why selling Risk Consultancy Services to Chinese companies is still far from easy.

So what’s the point ?

In the west, there is a whole industry called “risk consultancy”. Basically, this industry is built around informing large- and medium-sized corporations about risk. Originally, this was built around business risk and would answer questions like “How safe is it to invest $500M in an industrial diamond mine in the Congo. The consulting firm would then send practice consultants to the target country, where they would study sunk costs (including bribes which were never written about in the report, regulations, who was related to the president, political opposition, major competing firms, etc.) Most of these questions were positioned as questions which any board would ask the CEOs before they would greenlight an investment.

So how Chinese companies do this ?

Right now, the path many are taking is to send executives, management and staff wholesale to Africa, and basically telling them to figure things out on the ground. This is the Chinese version of “Let’s throw spaghetti at the wall and see what sticks” approach. But what happens when you don’t really have the protection of the Chinese government and local Chinese embassy, and the Africans start complaining that Chinese companies aren’t creating enough local jobs for local Africans? Obviously, these are the sorts of questions which are very complicated, since they include a social factor, in addition to the corporate and economic equation.

And why is that ?

When you are working from a low cost basis, there really is not a whole lot of need to measure risk because the only way to go is up.

On the other hand, when you have large risks but your investments are backed by the Chinese government, there is not a need to measure them either.

So do we have a chance to get involved ?

Will the Chinese companies turn to the western risk consultancies? Not likely. First of all, they are too expensive by Chinese standards; Chinese management is still very price-sensitive and is not likely to be willing to spend the large amounts which these companies charge. Also, they are not likely to entrust this kind of sensitive information to an outside firm which may recirculate some of the data for a competitor. Most Chinese companies are very tightly held, and risk is whatever the CEO thinks it is at that moment in time.

This is not going to help our profession by the way…

Read the full post here