SHIFTING SANDS

As large businesses change the way they operate and seek to drive down costs, it is increasingly important to maintain an effective risk and governance framework. Doing so is more and more of a challenge.

Hardly a week goes by without news of another large company getting itself into difficulty, sometimes with catastrophic implications for the firm and its investors. At the time of writing, we have the horsemeat scandal, wide-scale white goods safety scares, the grounding of aircraft worldwide because of defective batteries and the temporary inability of two major banks to provide basic customer services.

Are these one-off events or part of a trend? We have been researching this question for some time and, as we do so, certain patterns are emerging. One of the things we are seeing is that, as firms continually change their business models in response to new market and economic conditions, governance and risk management often struggle to keep up. In the process, they are exposing themselves to the risk of failure, with serious implications for corporate reputation.

Let’s begin with supply chains, which to at least some degree played a part in all the failures mentioned above.

Multinational businesses are about outsourcing, extended supply chains, dependencies on technologies that only a few people (if any) in the company truly understand. And they are doing all of that on a global basis. Not only are companies becoming more complex, many are constantly changing the way they procure.

Apr-Jun 2013 Issue

Airmic