Tag Archives: IBM

Immediate Vault

RIMS ERM Conference: ERM Best Practices

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It’s everything enterprise risk management here at the first annual RIMS ERM conference in San Diego. One of the first sessions of the day focused on new research by APQC (a business research firm) and IBM on the evolution of ERM into a critical discipline that helps to clarify and fortify strategic decision-making.

Speaking on the topic of ERM were Grace Crickette, chief risk officer of the University of California and Rob Torok, executive consultant of IBM Global Business Services. Both risk management professionals stressed the importance of ERM within any organization and any industry, stating that the CRO’s main responsibility is to identify potential events that could affect the company. “You, as a CRO, can’t say ‘that can’t happen to us,'” said Torok. “You must keep a broad view of all possible scenarios.”

And, as both speakers agreed, you must “make friends” with the sometimes-dreaded internal audit.

“Risk management is how management stays out of trouble,” said Crickette. “You are married to internal audit and yes, you will need lots of marriage counseling.”

APQC’s research found two examples of internal audit interplay and integration:

  • Marathon — audit plan is crafted with full view of enterprise risk and mitigation goals.
  • Intuit —  risk committee membership consists of the chief financial officer, general counsel, vice president of internal audit and the chief risk officer.

While successfully implementing an internal audit process is important, it’s also important that a company not only have one, single definition of risk when it comes to ERM, but that it also has one, single definition of “impact” in terms of how an possible risk will impact a company. “With the definition of impact, there’s  high, medium and low,” said Torok. “Well what do you consider high, medium and low?”

And in terms of companies successfully using online ERM platforms, there are a few standouts:

  • Intuit’s ERM software (internal use only)
  • The University of California’s Excel-based risk assessment tool (publicly available here)
  • Caterpillar’s voting tools and simplified reporting requirements (internal only)

(In our November issue, we ran an ERM case study involving Caterpillar, which you can view here.)

Stay tuned for more to come from the first annual RIMS ERM Conference.

Grace Crickette, Rob Torok and moderator Mary Driscoll discuss ERM best practices.

 

Corporate Malfeasance From Enron to Lehman

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The world has seen its share of bad business ethics ever since citizens began offering goods or services for a stipend. The effects of such wrongdoings have been magnified, however, as businesses have prospered and the greed of some has grown. Greed which can sometimes drive people to forget their morals. Some may think of Lehman Brothers as the the worst case of corporate malfeasance to ever rock the business world, while others may claim it was Enron.

One website has published what it claims are the “10 Great Moments in Corporate Malfeasance.” I’m not so sure the word “great” aptly describes these 10 moments. I would guess “worst” or “reputation-ruining” would be more appropriate. Nevertheless, after introducing the piece with the Enron scandal, the site says “what follows are 10 more examples of what a person might do if given the chance to make more money.”

It lists pharmaceutical maker Roche (#10) as refusing to sell its HIV drug Fuzeon at $18,000 (what it was valued at by South Korean health officials) as opposed to $25,000. Even though the drug maker would still make a hefty profit, it refused to sell at the discounted price with the head of Roche’s Korean division claiming, “We are not in the business to save lives, but to make money. Saving lives is not our business.” That’s one people won’t soon forget.

WellPoint (#7) didn’t fair so well in the spotlight after the U.S. health care debate raged this year. It was found that the insurance company was severely abusing recission (the policy of finding ways to cancel insurance contracts). Whose contracts were they canceling?

Women who were diagnosed with breast cancer.

WellPoint was using a computer algorithm that automatically targeted them and every other policyholder recently diagnosed with breast cancer. The software triggered an immediate fraud investigation, as the company searched for some pretext to drop their policies, according to government regulators and investigators. Once the women were singled out, they say, the insurer then canceled their policies based on either erroneous or flimsy information. WellPoint declined to comment on the women’s specific cases without a signed waiver from them, citing privacy laws.

Getting to what most people think of when they think “corporate malfeasance,” the list mentions Goldman Sachs (#5) and its “doomed-to-fail” fund.

Investment banking house Goldman Sachs created Abacus 2007-ACI, a fund of mortgages it sold to investors. What Goldman didn’t tell Abacus fund investors was that the mortgages they were betting would succeed had been handpicked by a favorite Goldman investor to actually lose.

That investor was John Paulson, who eventually made $1 billion from the fund.

IBM (#1) and its tech support garnered the unattractive top spot on the list. The tech giant sold some of its earliest model computers to Nazi Germany, with its founder, Thomas Watson, receiving the highest honor the country could bestow upon non-Germans, the Grand Cross of the German Eagle.

IBM admits that the company’s computers were used to carry out the logistics of the Holocaust, but denies awareness of this use at the time.

Thankfully, there are organizations in place that act as watchdogs for major corporations. CorpWatch is a nonprofit that works to expose corporate malfeasance and “advocate for multinational corporate accountability and transparency.” And probably more well-known is Corporate Accountability International, an organization that has fought against abusive corporations for more than 30 years. They have an impressive track record; from the infant formula campaign of the late 70s and early 80s to the nuclear weaponmaker’s campaign that spanned a decade, they work to bring to light wrongdoings of big businesses. Something Lehman and Enron could have used.

We are a capitalist society, which is only wrong when greed comes before humanity.