Investment firms and top execs at odds on risks: FM Global

The world’s top executives and investment firms have very different views on the key risks to corporate revenue sources, according to a new study by FM Global and Harris Interactive.The annual “Protecting Value” study looks at risk to key revenue drivers through the eyes of 600 executives from “global 1000” corporations and investment firms.The 2004 edition finds 69% of CFOs, treasurers and risk managers from corporations in North America and Europe see property-related risks as the number-one threat to their top revenue sources. This includes such things as fire, explosion and supply chain disruption.However, 79% of investment firms cite non-property risks such as pricing fluctuations, government/regulatory hazards and management/employee malfeasance as the key risks.In fact, only 3% of corporations view malfeasance as a key risk. Interesting, just 1% view terrorism as a serious threat to revenue.Corporate executives also take a far more optimistic view of their preparedness to handle threats to their revenue sources while 80% of them rank their ability to protect their corporations as excellent, a full 49% of investment firms says companies abilities are fair or poor.One thing corporations support is enterprise-wise risk management, with 90% saying this should be and is becoming a board-level issue. Most European companies felt this was already the case in their own company, while only 65% of North American companies felt ERM focus had reached the board level. “We believe that executives and investment professionals with the greatest understanding and appreciation for sound risk management programs have a distinct advantage over those that do not,” says Ruud Bosman, executive vice president of FM Global. “Companies and investment firms are increasingly beginning to recognize that effective risk management programs can help reduce quarter-to-quarter volatility in revenue and contribute to a company’s financial performance.” Investment firms certainly seem to be placing emphasis on risk disclosure and reduction, with 78% saying they frequently analyze potential risks to revenue unfortunately 53% rate companies’ disclosure of risks as fair or poor.”The results of the study suggest that investment professionals would reward companies for more complete and detailed disclosures of how they identify and deal with major risks,” says Randy Kraszner, professor of economics at the University of Chicago’s graduate school of business.