1. Why is a case on Enterprise Risk Management part of a course on Corporate Governance and Sustainability?
Corporate Governance is a set of processes, policies and laws that intend to direct the way a corporation is administered or controlled. Also, it has as a part of its pillars to strive all of the corporate strategicobjective, therefore Enterprise Risk Management is a respond to unexpected threats or business surprises that can place into jeopardy what the company wants to achieve and prevent from loosing shareholder value.
2. Define risk. In your explanation, explain how the company determines which risks are relevant. Also explain what the ‘magnitude of the risk” means. Give anexample.
Risks are all the probable threats or occurrences that can be caused by an external factor or internal vulnerability to a corporation. A risk can be theft, fire, employee injuries, earthquakes, exchange rates or even interest rates. Often, all of these items cannot be predicted but nevertheless, mitigating risk can be helpful to know which way to act in case any of them occurs.Moreover, risks are different and have different consequences; all of them are important and cannot be unappreciated. In order to prioritize and classify risks “Enterprise Risk Management” evaluates the magnitude of a risk to understand the impact and probability of happening (frequency).
For example, in the province of Ontario for Hydro One, snow, freezing rains and upto 100km/h wind, continually threat the transmission and distribution system therefore, the Company makes a list of all the risks that can endanger the operations and through magnitude of the risk the management can vote and prioritize the ones that will have a higher impact and probability in case of happening.
3. Explain risk incubation. Give an example.Risk incubation is when an organization does not have the correct processes, information channels, adequate systems, to protect, manage and detect risk. So, it is a time bomb that sooner or later will start evidencing the company flaws, security gaps and different risks will start emerging one after and other.
Risk incubation is a consequence of not having anEnterprise Risk Management system and Hydro One is a clear example of this before Laura Formusa positioned as CEO of the company. She stated “there was a great deal of turmoil and it wasn’t just immediate, it had been going on for some time”, making reference to failed IPO, 2 CEO’s who left under a cloud, an employee strike and were just reflecting a negative image of the company that could have beenavoided or mitigated with the correct tools and systems.
4. Explain the purpose of voting by management in the Enterprise Risk Management process. What does management vote on?
As a part of the Enterprise Risk Management system at Hydro One, the company collects a generic list of 60 to 70 risks that can become potential threats to the business. Then, the managementis asked to vote during risk workshops for the most critical risks that a business or project can face. Additional information can be obtained by performing interviews or focus groups, until the list is narrowed down to the 10 most important risks. The voting responsible (facilitator) then displays the outcome of the voting, centering attention to the biggest deltas, then people that voted areallowed to express why they voted in the way they did in order to support their thinking and use their expertise to solve discrepancies . Democracy helps people from different areas understand how a risk can impact in diverse forms the organization from different perspectives. Even tough, voting is a consultative process, now that the CEO is the one in charge of making the final decision; it helps...