Over the years, businesses have evolved a number of innovative ways to manage the risks associated with global operations. They have developed sophisticated ways to insure their infrastructures and their operations and to hedge their currencies. They have learned how to distribute information resources globally, using highly resilient computer networks with geographically dispersed backups. They have put in place sophisticated new internal controls systems to monitor performance and tease out fraud on a global basis. They have developed intricate taxonomies to enable different divisions to rate and communicate their risks in a consistent manner around the world. They have even created a new global role — the chief risk officer — to watch over the company as a whole. And many boards of directors have made risk management one of their top priorities. But despite these initiatives, gaps remain.
Global companies face two distinct types of risks: large-scale, low-frequency risks and small-scale, high-frequency risks. Although the large-scale risks — earthquakes, wars, coup d’états and major acts of terrorism — are front-page news, the small-scale risks — fraudulent transactions, bribery, legal and regulatory complexity, and unenforceable contracts — represent the real costs to business. These risks interfere with commerce, add to costs, slow growth and make the future even more difficult to predict. They also deter investment. “The key to any good investment relationship is clarity... To read the complete article, login or sign-up using the form below.
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