Enterprise Risk Management: From Incentives to Controls, 2nd Edition

CHAPTER 18

Non-Financial Corporations

As the twenty-first century begins, corporations from a range of industries and from around the world face unprecedented opportunities and risks. Globalization, technological advance, changing market structures, industry consolidation, intense competition, and outsourcing and re-engineering: combined with the stock market's increasing proclivity for earnings stability, these trends have placed new importance on the role of risk management.

Whereas financial institutions have long recognized risk management as a core competence in their business, non-financial corporations are beginning to realize that risk management tools can help them improve their financial performance beyond the traditional applications in hedging currency, interest rate exposures, or buying corporate insurance. Leading corporations are turning to enterprise risk management as a means of enhancing shareholder value, ensuring financial stability, and facilitating the achievement of strategic and corporate objectives.

In this chapter, we will examine the major changes affecting corporations from a wide range of sectors, such as consumer products, durable goods, high technology, pharmaceuticals, chemicals, and agriculture.

RISK MANAGEMENT REQUIREMENTS

A negative risk event incurs significant costs for a corporation. In addition to financial loss, it can damage a company's brand and customer relationships, as well as its reputation in the industry. It can also represent a ...