Dealing from a full deck.

• Author: PILKO, GEORGE
• Position: Corporate-wide risk management programs - Brief Article

Don't be caught holding the environmental joker when you sign on for a corporate-wide risk management program.

MAJOR COMPANIES are now investing mega-millions in corporate-wide risk management programs marketed by the large management consulting firms. The logic is overwhelming. In today's dynamic global economy where events happen (and are reported) at gigabyte-per-second Internet speeds, unexpected blips on the radar screen can blow the company ship out of the water almost overnight. Remember that rogue Far Eastern trader who single-handedly bankrupted a large London investment house?

In the old days when business moved at the pace of snail-mail, you had time to think and respond, and risk management was not so pressing. Today: Prepare in advance. Risk management is a necessary price of doing business -- and of staying in business.

And when you sign on for one of these corporate-wide risk management programs, make sure you are addressing all the risks.

One large energy company has spent upwards of $200 million on a risk assessment and management program over the last two years but has yet to examine environmental, health and safety (EH&S) risks with the attention the topic deserves. The management consulting firm that sold the program has turned over all the cards covering political risks, internet security risks, currency fluctuations, commodity price volatility, etc., but the consultant has not tackled EH&S risk because it simply is not their area of expertise.

Yet for any energy company, refiner, chemical manufacturer, utility, mining company, or any other company with large potential environmental impacts, leaving EH&S out of the risk management game is like giving unkind fate an ace up its sleeve.

Generally, EH&S risk falls into three categories:

* Risks related to acquisitions and divestitures. Example: One company that sold off portions of its business for $2 billion is now facing $200 million in claims submitted under the environmental indemnity provisions of the divestiture, because it had not anticipated this risk and did not have business processes in place to identify and manage these risks during divestitures or manage indemnity issues post-closing.

* Risks related to ongoing operations. Example: Several well-respected multinational companies have recently uncovered extensive U.S. noncompliance problems, in spite of proactive environmental policies, large EH&S staffs, extensive audit programs, and senior management actively...