Economic Approach II: Investment and Corporate Risk

Question 1

What is the relationship between insurance and corporate risk?

Answer 1

Insurance is used as a form of risk management

Question 2

What is the difference between Corporate Risk, Corporate Security and National Security?

Answer 2

• Corporate Risk: Enterprise risk management, auditing, profit .
• Corporate Security: Hazards, crimes, (safety), protection - traditionally seen as a cost to the company.
• National security: Threats to the nation - how does this relate to private companies? Global changes also affect corporations.

Question 3

What is the relationship between corporate risk management and auditing?

Answer 3

Uncertainty as the basis for risk management. Risk analysis is a criteria for self governance; auditing is an internal solution to external pressure i.e. self-control only because external forces require control (Power 2007). This is where CSR studies meet risk studies.

Question 4

What is an example from Power (2007) of a corporate scandal that lead to the avid use of enterprise risk management?

Answer 4

Enron 2001, huge fraud scandal - from here an increased focus on internal management of risk - from this also came the introduction of ISO standards.

Question 5

3 stages of Enterprise risk management?

Answer 5

1. Strategy
2. Identification of vulnerabilities (probability and severity)
3. Identification of the possibility for mitigation

Examples of risks:

• High risk / low probability: industrial espionage, reputation
• Low risk / high probability: stress, illness due to bad cleaning

Question 6

What is a enterprise risk?

Answer 6

There are several definitions of this type of risk - no universal language. Wakefield (2014) lists several definitions of risk.

Question 7

6 concepts of enterprise risk?

Answer 7

1. Political risk
2. Operational risk
3. Financial risk
4. Technological risk
5. Safety
6. Security

Some of these can be insured against (transfer of risk).

Question 8

What is the conventional understanding of political risk in corporate risk management?

Answer 8

• Related to new investments (but not necessarily)
• External to the company
• Related to foreign countries policies (legislation)
• Often difficult to calculate (qualitative analysis - difficult to measure and evaluate vulnerabilities - even if you cannot measure it you assign some type of measurement)

Politics as related to external actors and space (market /
politics distinction). Politics as the political act of setting up risk management procedures - it is political choices, boundaries of acceptability - politics is not just something external, each risk analysis also affect external environment.

Question 9

How does CSR fit into corporate risk management?

Answer 9

”The stakeholders perspective”
CSR as a benefit to everyone – society and company
Story and Price (2006) CSR as a way to mitigate risk; create a better reputation, trust in the product and in the company.

”The shareholder perspective”
Milton Friedman, New York Times Magazine (1970):
‘[t]he social responsibility of business is to increase its profits’
*CSR – a risk to the company, a cost which we need to monitor (Heugens and Dentchev 2007)

Question 10

What is the concern with market vs. politics?

Answer 10

Are societal concerns overtaking economic concerns i.e. are politics taking over the running of business? Or is it
the private market that makes the political priorities in their
definitions of CSR i.e. are the companies affecting the choices being made in politics? - what is the responsibility of the market in relation to e.g. national security?

Question 11

What is ‘safety’ in relation to corporate risk?

Answer 11

The controllable, internal and manageable threats: the normal risk or that which we can live with.

Question 12

What is ‘security’ in relation to corporate risk?

Answer 12

The non-controllable, a matter of external events = the abnormal. Security is a need.
E.G.
“Although control of salmonella is important to food safety, it remains a calculated risk, which is natural. Anthrax is not
natural, and this is an important difference. ” (Danish Crown)

Question 13

What are some of the current trends in corporate security?

Answer 13

• Security managers are moving up the organizational
  hierarchy
• CSOs with a background in national security
• More issues are regarded relevant for corporate
  security, incl terrorism
• Intelligence is highly prioritized “intelligence revolution”
  -Security industry in general is growing, this is also applicable within corporations

Question 14

How is national security being decentralised?

Answer 14

-Security politics in the everyday management of threats by
different actors
-Security politics translated into daily practices on risk
mitigation.
-Private actors being responsibilised to act in the name of
national security – resilience as the new mantra

Question 15

Where can you see the difference between corporate risk and corporate security?

Answer 15

In the practise.

Question 16

How is national security as a responsibility of market, viewed in different countries?

Answer 16

It is viewed differently in various societies - e.g. USA generally see it as a shared responsibility vs. Denmark who still see it as very much a government responsibility. However, there is a growing agreement that there is a need for public-private partnerships and informationsharing.

Question 17

How does Power 2007 describe corporate risk?

Answer 17

When uncertainty is organized it becomes a ‘risk’ to be managed (Power 2007:6).

Question 18

How does Wakefield 2014 see corporate security?

Answer 18

As a risk management function. A broadening of the corporate risk concept to include corporate security.

Question 19

What difference does Petersen 2014 see between corporate risk and corporate security?

Answer 19

Corporate security is not - to the same extent as risk - easily reconcilable with profit maximization and economic calculation (Petersen 2014:83).

Question 20

How does Wakefield 2014 relate politics to corporate risk/security?

Answer 20

Every high profile corporate failure or disaster returns risk and regulation to the top of the political agenda…[the] 24/7 mass media intensify the political pressure on companies to demonstrate to the world that they take corporate governance and corporate social responsibility seriously (Wakefield 2014:251).

Question 21

How does Power 2007 relate politics to corporate risk/security?

Answer 21

…governance discourse has created a new political economy of internal control (Power 2007:60).

Question 22

How does Story and Price 2006 see the public/private divide?

Answer 22

As becoming blurred, as public as well as private companies have to act on industry standards - including legislative demands and CSR that are intrinsically political.

Question 23

How does Petersen 2014 see the public/private divide?

Answer 23

National security is reaching into private companies in a neo-republican form of security governance, to distribute national security responsibility - this is problematic as it affects the freedom of the free market.