French Caldwell
It wasn't surprising to hear a lot of talk about risk at a conference billed as a Litigation Summit—especially since the majority of the speakers provide services designed to mitigate a company's risk. Nothing like a little anxiety to focus the mind.
But they also had some pretty good material to work with. Consider these statistics: An international risk survey found last year that 70 percent of the companies surveyed had not anticipated most of the risky events they experienced, and only 30 percent accurately estimated the impact of those episodes.
Or how about this: A study from the late 1990s showed that 10 percent of the Fortune 1000 companies had lost over 25 percent of shareholder value—are you ready for the kicker?—within a one-month period. And months after the initial drop, those companies had not recovered the lost value.
These were some of the numbers that Paul Walker threw around during a panel discussion on Wednesday. It was the second and final day of a two-day conference that ALM (the parent company of CorpCounsel.com) hosted in Washington, D.C., this week. (Walker, director of the PriceWaterhouseCoopers Center for Innovation in Professional Services at the University of Virginia's McIntire School of Commerce, is also listed on the conference's advisory board.)
The session was on enterprise risk management (ERM), and the slate of statistics wasn't even the most interesting part. Walker recounted experiences in which companies that contacted him didn't always have open lines of communication. And the general counsel weren't always sure what to do about that.
"I can't tell you what to do," Walker remembered telling a client he declined to identify. "And I'm not a lawyer. But you people need to talk to each other."
In Walker's view, more and more general counsel are beginning to see the value of ERM and are interested in learning about it, but some don't know how to introduce it into their companies. In other words, they don't quite get that it has to be enterprise—not law department—risk management.
The motivations for companies to embrace ERM have never been clearer, Walker added. Standard & Poor's has taken a keen interest in this subject, he noted, and will lend a hand assessing a company's risks. And when they do, said fellow panelist French Caldwell (who leads governance, risk management, and compliance research at Gartner, Inc.), 30 percent of the companies see their credit ratings change. Half of those are downgraded, Caldwell said, and the other half are upgraded.
The third member of the panel, Steptoe & Johnson partner James Moorhead, summed things up. For companies facing risks these days—and which ones aren't?—general counsel may not be able to afford to sit on the sidelines. The role itself seems to demand more. And that includes guarding the company's reputation.
"The general counsel has to be half historian and half prophet," Moorhead declared. "You have to keep your eye on what's coming down the road."
See also: "Heineken CLO on the In-House Role in Reputational Risk Management," CorpCounsel, October 2011.
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