Empowered Enterprise Risk Management

CHAPTER 11Risk in Practice: The Case of Equinor

ENTERPRISE RISK MANAGEMENT (ERM) in Equinor got under way in 1996, when Petter Kapstad, with a background in banking, was asked to systematize the management of risk in the finance department. The catalyst was the company executives’ desire to better understand the exposure to financial risks, especially as they related to derivatives. At the time, derivatives had been implicated in several well‐publicized scandals, and the executives wanted to increase their control over these risks. The result of Kapstad's work was that the risks managed by the finance department were measured and managed as a portfolio of risks with central oversight. It led to the establishment of four key principles that were to have an enduring impact on the company's risk philosophy:

• Risk and upside are two sides of the same coin
• Risk must be assessed holistically from a portfolio perspective
• Risk should be quantified to the extent possible
• The purpose of managing risk is to contribute to value creation

The then chief executive officer (CEO) of Equinor, Harald Norvik, realized that the same principles could be applied to the whole company. The integrated perspective essentially meant looking at Equinor as a portfolio of businesses with risks that were correlated with each other. The idea was that there would be benefits from coordinating their management across the enterprise. Thus, the enterprise perspective on risk management was born in Equinor, and ...