Risk Management’s Role in Driving Progress for the new “The Purpose of a Corporation”

The Business Roundtable on Aug. 19, 2019 issued a new “Statement on the Purpose of a Corporation.”

When I have done risk management reviews, I have noticed that most risk processes have not been reviewed in light on this new statement.  I have listed some examples in bold within the commitment below by the 181 CEO’s that represent 15 million employees and more than $7 Trillion in annual revenues.

We commit to:

– Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.  Gaps:  1) Most operational risk metrics do not track customer complaints or product/service delivery feedback.  2) The AI and risk models are primarily developed and trained on economic factors that benefit the Shareholder, and very few consider the customer loyalty impact, brand impact, or new product operational risks.

– Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.  Gaps: 1) Compensation comparisons are measured by outdated industry surveys rather than timely updates on new hire compensation and employee attrition metrics. 2) Employee development programs tend to focus on leadership skills. However, documentation and training are generally lacking on what, why, and how processes work.  This leads to people, process or system errors during downsizings, leadership changes, or employee transitions.

– Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions. Gap: Most operational risk assessments look at the impact of a supplier failure on the company rather than the impact to the supplier if the Company has issues. The most recent example of this is the harm to Boeing’s suppliers.

– Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses. Gap: Choosing work locations is still driven by executive preference and costs rather than serving more diverse communities or where the communities need economic stimulus and environmental investments.

– Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.  Gaps: 1) Cybersecurity metrics are rarely reported. 2) Few companies provide a risk/reward benefit analysis of their private equity investments or share buybacks, especially when the acquisition price is high.

I have been a supporter of the new statement defining the role of the corporation.  Leaders are communicating their commitment to the broader role of corporations. The use of independent oversight brings to light some of the internal changes that need to be made to make the statement real.



Author: RiskDirector, LLC

Risk Management Advisory and Consulting

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