Risk management has been thrust to ‘top of mind’ status for company boards, CEOs and CFOs. Events like the recent BP oil spill would surely be a wake up call for all CFOs that events perhaps seen as ‘external’ factors can no longer be considered from a do-nothing mindset.
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CFOs in Australia must be breathing sighs of relief as they watch in horror the spectacle of the CEO, the CFO and the Chairman of BP being publicly interrogated by US Congressman. “What do you or didn’t you know about the risks? What risk assessment was in place in relation to deep sea oil drilling.” And so on.
Then again, Australian CFOs should take note of what is going on in their own back yard. As far as poor management risk assessment goes, it seems that James Hardie is Australia’s own BP; a corporate pariah.
The asbestos saga led the company, its senior management and directors into the courts, accused of misleading and deceptive conduct and breaking director’s duties. In its own public utterances the company is addressing the asbestos challenge as a “legacy” issue, firmly placed on the desk of CFO Russel Chenu. (See Improve Corporate Performance through Risk Management for another perspective).
Legacy issuesThe BP and James Hardie dramas are illustrations of public relations disasters as well as near-death financial disasters.. BP drills for oil –a high risk endeavour by any standards but so too is the legacy business of James Hardie – it makes fibre cement siding for homes. In previous interviews the Hardie CFO has noted that the legacy issue of asbestos was originally considered as one that would take “a couple of years” to work through; a task which obliged hashing out a deal with the NSW government to pay compensation into a fund for victims of asbestos poisoning as well as a dispute with the Australian Tax office.
Legacy problems and future activities need therefore to carry equal loading as far as risk assessments. Ironically, whereas BP’s name in the USA is mud, James Hardie has built up a very successful business in the US.
Conducting a risk assessmentLegacy issues and high risk ventures have been thrust to the forefront by these two high profile calamities. Risk assessment needs to evolve and CFOs learn from such experiences. The CFO deals in numbers and accountability. As such, they have the unpopular task of confronting people with the kind of hard data that make others in the organisation face the cold realities of business. CFOs have a strong grounding in risk assessment, analysis. They can influence better risk assessment outcomes.
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