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SURVEY: CORPORATE RISKS RISING – BUT RISK MANAGEMENT EFFORTS NOT KEEPING PACE

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SURVEY: CORPORATE RISKS RISING – BUT RISK MANAGEMENT EFFORTS NOT KEEPING PACE

New research from North Carolina State University and the American Institute of CPAs (AICPA) finds most executives see risks increasing in both number and complexity – but those same executives say their organizations’ risk management efforts may not be staying abreast of those risks.

The findings are part of a new report titled “The State of Risk Oversight: An Overview of Enterprise Risk Management Practices,” released jointly by AICPA and NC State’s Enterprise Risk Management (ERM) Initiative.

In a survey of 432 chief financial officers and other senior executives, nearly 70 percent of large, public, and financial service company respondents reported that the risks they face are increasingly complex and numerous compared to five years ago. At the same time, less than 50 percent of those organizations – and only 25 percent of all respondents – described their risk management processes as mature or robust.

“What this study reveals is that there is a huge disconnect between corporate challenges and how organizations are responding to them,” says Mark Beasley, co-author of the report, director of the ERM Initiative and the Deloitte Professor of Enterprise Risk Management in NC State’s Poole College of Management.

This disconnect may stem from the fact that only 25 percent of survey respondents felt they had effectively integrated risk management into their strategic planning.

“If risk management isn’t advancing strategic goals, it’s hard to show its value,” Beasley says. “And that means risk management can easily slip down an organization’s list of priorities.”

The lack of executive leadership positions focused specifically on risk may also be a factor. According to the report, only 42 percent of respondents said their organizations have a designated Chief Risk Officer (CRO) or equivalent senior risk executive. This figure is an increase of 10 percentage points over 2015 and 2014, showing that organizations are moving towards strengthening risk leadership. The study cites growing cyber security threats and global events such as Brexit and the U.S. presidential election as possible explanations for the noticeable increase in CRO designations.

The report also found that pressure is increasing for business leaders to embrace a more direct role in risk oversight. Sixty-seven percent of respondents report that their board members are calling for increased senior executive involvement in risk oversight.

“This report tells us that there is a significant need for enterprise risk management given the complexity of the risks businesses are facing – and that boards of directors are calling for it,” said Ash Noah, CPA, CGMA, vice president of CGMA external relations at the AICPA. “Organizations that adapt and implement a big picture approach to risk are better positioned to identify and capitalize on risk taking opportunities, providing them a competitive advantage in the market.”

“ERM can be a valuable tool because it essentially calls for executive leadership to look at all of the potential risks an organization may face and develop plans to address those risks from the top down,” Beasley says.

“All organizations engage in risk management, but conventional risk management is done in silos – the sales group handles sales risks, the manufacturing group handles production risks, and so on,” Beasley says. “This approach can be problematic. For example, one group may take steps to limit risk in its area that inadvertently create risks for another area – such as implementing new IT security protocols that may affect software used by the sales group.”

“The ERM approach allows for a holistic overview of risks across silos,” Beasley explains. “Perhaps more importantly, ERM allows executive leadership to identify and address risks that are relevant to an organization’s strategic goals; something that executive leadership is ideally suited to address.”

To assess the status of risk oversight, the ERM Initiative and AICPA collaborated to conduct a survey of executives in organizations ranging from the manufacturing and insurance sectors to construction and nonprofits. The size of the organizations also varied. Approximately 14 percent of respondents worked for entities with annual revenue of $10 million or less. At the other end of the spectrum, nine percent of respondents worked for organizations with annual revenue of more than $10 billion. Eighty-eight percent of the entities were based in the United States.

The report looks at responses from all parties, but also breaks out the survey findings for publicly traded companies, financial service providers, nonprofit organizations, and “large” organizations – defined as those that have revenue of at least $1 billion per year.

Additional findings from the study include:

  • Approximately 28 percent of organizations have complete ERM processes in place. This figure is up 19 percent from 2009.
  • About half (51 percent), of organizations communicate key risks merely on an ad hoc basis at meetings. Only 30 percent of executives said they had dedicated agenda time to discuss key risks at management meetings.
  • Almost two-thirds (62 percent) of organizations said the extent to which risk management activities are an explicit component in determining management compensation is non-existent or minimal.

The report was co-authored by Bruce Branson, associate director of the ERM Initiative, and Bonnie Hancock, executive director of the ERM Initiative.

Business

FTSE 100 edges up as HSBC, drugmakers gain

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FTSE 100 edges up as HSBC, drugmakers gain 1

Via Reuters

By Shivani Kumaresan

(Reuters) – British shares inched higher on Tuesday, supported by gains in HSBC and drugmakers, at a time when tighter coronavirus restrictions have raised concerns about the pace of an economic recovery.

The FTSE 100 index was up 0.3% after two consecutive sessions of declines, with HSBC Holdings, up 2.5%, giving the biggest boost to the blue-chip index.

“HSBC is up on Asian growth. UK investors could play on the what the growth is like in China,” said Neil Wilson, chief market analyst at Markets.com.

“We are dealing with a market that is shuffling the cards at the moment in a sense that they had a big run over the last three months and is looking for direction.”

The FTSE 100 tumbled 14.3% in 2020, its worst performance since the 2008 financial crisis and underperforming its European peers by a wide margin, as pandemic-driven lockdowns battered the economy and led to mass layoffs.

British firms called for another 7.6 billion pounds ($10.3 billion) of emergency government help, saying they cannot wait until finance minister Rishi Sunak’s March budget to learn if they will get more pandemic support.

The mid-cap index gained 0.2%, with travel stocks easyJet and Wizz Air Holdings being the top boosts.

Shares of Experian Plc, the world’s largest credit data firm, gained 1.2% after its third-quarter revenue growth exceeded targets, helped by strong U.S. mortgage volumes.

OXO cube maker Premier Foods fell 4.6% despite a 90% jump in the third-quarter online sales, while British fashion group Superdry lost 12.9% after reporting a big drop in sales in the Christmas quarter.

(Reporting by Shivani Kumaresan in Bengaluru; Editing by Subhranshu Sahu and Shailesh Kuber)

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Google backs Indian courier startup Dunzo in $40 million fundraising

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Google backs Indian courier startup Dunzo in $40 million fundraising 2

Via Reuters

BENGALURU (Reuters) – Indian hyperlocal courier startup Dunzo has raised $40 million from existing investor Google and others, it said on Tuesday, after seeing a surge in usage during the COVID-19 pandemic.

As many Indians stayed indoors for much of 2020 because of the health crisis, Dunzo and food-delivery apps Zomato and Swiggy recorded a fresh surge in popularity. Naspers-backed Swiggy also runs a hyperlocal courier service.

“This capital stems from a year of robust growth amidst the pandemic,” Dunzo said in a statement. “As cities reopen, (Dunzo) continues to see strong growth across user segments.”

Besides Google, Lightbox, Evolvence, Hana Financial Investment, LGT Lightstone Aspada and Alteria also participated in the fundraising round, the Bengaluru-based company added.

Dunzo allows users to order groceries and other essential items from nearby stores as well as run pick-up and drop errands within the eight cities it operates in.

“As merchants go digital, Dunzo is helping small businesses in their digital transformation journey,” said Caesar Sengupta, vice president at Google, which has set aside $10 billion for digital investments in India over five to seven years.

(Reporting by Sachin Ravikumar in Bengaluru; Editing by Shinjini Ganguli)

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Bankers call for ‘hybrid’ shares to plug COVID corporate capital gap

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Bankers call for 'hybrid' shares to plug COVID corporate capital gap 3

Via Reuters

LONDON (Reuters) – European companies hit by COVID-19 could issue “hybrid” shares to plug a predicted capital gap of up to 600 billion euros ($723.48 billion) when government relief measures expire as vaccination programmes are rolled out, a report said on Tuesday.

The report compiled by consultants PwC and the Association for Financial Markets in Europe (AFME), which represents banks and other market participants, said economic recovery is under threat unless the capital gap is bridged.

It proposes a new European-Union-wide hybrid security like preferred shares, a form of stock that has features of ordinary shares and bonds, typically offering a priority in dividend payments but with no voting rights.

“This is where hybrid and equity markets can play a key role in supporting Europe’s recovery,” AFME CEO Adam Farkas said in a statement.

Despite relief from governments and the private sector since the start of the pandemic, 10% of European companies have cash reserves to only last six months, the report said.

The EU has already passed a package of “quick fix” measures to make it more attractive for companies to rebuild their finances by issuing shares on the stock market rather than the more common route of taking on debt such as bank loans.

But many mid-sized and SME corporates do not want to give up control of their business by issuing ordinary shares, the report said, and are willing to pay a premium not to dilute their voting rights.

“Hybrid instruments are ideally suited to address these needs,” it said.

Policymakers could also explore further use of dual class shares to address the control concerns of companies, as well as debt for equity swaps to reduce leverage, the report said.

(Reporting by Huw Jones; Editing by Catherine Evans)

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