COMMUNICATING POLICY TO MANAGE RISKS MORE EFFECTIVELY
R&C: How would you characterise the range of risks that companies typically face today? How important is effective communication when it comes to managing these risks?
Meyers: Companies have always faced a broad range of risks, often categorised in five areas: strategic, operational, regulatory, financial and reputational. The specific risks that each company faces may vary widely, but certain risks have emerged and are now top of mind for almost everyone. These include cyber security, data privacy compliance, tariffs and supply chain disruption, and shareholder activism. It is critical for a company’s ultimate success that management undertake regular risk assessments and that the company adopt policies requiring risk reporting up the chain to the board of directors. After all, without prompt and clear communication of this sort, risks cannot be managed effectively in large organisations. For this reason, Delaware law requires directors to implement, oversee and monitor internal controls for risk management, which include communications protocols. A failure to make a good faith effort to do so may constitute a breach of the directors’ fiduciary duty of loyalty – for which he or she may be personally liable.
Hansen: In today’s volatile, uncertain, complex and ambiguous world (VUCA) with disruptive external factors as well as increasing geopolitical tensions, the external risk environment for companies can change very quickly. As a result, there could be an impact on a company’s strategy and its internal risk situation. This can affect the company’s entire value chain, from research and development (R&D) to production to marketing to sales. It is crucial that not only every manager, but also every employee understands current risks, where they come from and what needs to be done to overcome them. It is also imperative that employees understand the root causes of risks so they truly understand the risks and the opportunities they represent.
Jan-Mar 2020 Issue
Cleary Gottlieb Steen & Hamilton LLP
Edelman
Novartis International AG