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| Best Practices |
Risky Business
Stewart Kampel
04/01/2005
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For the past several years, the need to put reporting systems in place to comply with the Sarbanes-Oxley law has diverted the attention of many companies from managing these business risks. “Corporate directors are not getting strategy preparation,” Brancato says. Paul Kocourek, a senior vice president at the New York office of consulting firm Booz Allen Hamilton, agrees. “Risk governance is the key to finding the balance between control and innovation. Companies need to develop a process that both protects shareholder value, by eliminating earnings surprises, and also enhances it, by fostering growth.”
Indeed, a 2004 study by Booz Allen found that strategic mismanagement and poor execution—in short, managers failing to manage well—destroyed more shareholder value in the previous five years than was lost in all of the recent compliance scandals combined.
Directors seeking to avoid the fate of the WorldCom and Enron boards are desperate to find best practices in the amorphous field of business risk management. They might look to PepsiCo’s example. Tom Lardieri, vice president and general auditor, says the company originally hired consultants to devise a risk management
system, but it proved too cumbersome and complicated for an organization that is consumer-oriented. “They wanted us to quantify things, and you needed sophisticated tools to quantify the risks,” Lardieri remembers. “We realized it was not going to be cost-effective.”
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