Public Company Non-Financial Risk Reporting: Yay or Nay?
In "The Australian" Today (20/02/07) it reports;
This is an interesting topic. Many shareholders of public companies have long held that strategic risks should be reported as well as simply financial. After all even core operational risks give rise to the strategic risks within the register, and it is often these types of risks - when left untended - that have taken down companies.
Consider a recent case in New Zealand where a major electricity wholesaler mis-judged the impacts of a well forecast dry and cold winter - two attributes which make for a dangerous scenario in terms of lake levels. Combine this with the company's slowness to recognise and negotiate their hedging position at the expiry of the previous contract. Result? The company survived . . . just, and only after selling off their entire retail division. They lost $300 million in three months - not including the impacts on their share price.
Now consider that such risks are not required to be reported.
Financial management alone does not maketh the company, a fact lost on many CFO's and board members alike. Many are still grappling with the advent of IFRS - and pining for the good old days of GAAP and industrial/manufacturing based economies.
Still, how much reporting is too much? And if the executive and management can't get on with managing the business - as they are both qualified and mandated to do - without being interrupted every two minutes, then what kind of business will they have anyway?
No one doubts it is a question of balance, but whose version of "balance" should public companies adopt?
The risk reporting idea of ASX Limited's Corporate Governance Council continues to attract attention in February 2007. Groups such as Australian Ethical Investment and the Sustainable Investment Research Institute are supportive of non-financial risk reporting. However, high-profile business leaders who have rejected the concept include Don Argus, BHP Billiton chairperson; David Gonski, an ANZ Bank director; and John Stewart, National Australia Bank's CEO. A manager of Portfolio Partners, Amanda McCluskey, has revealed that superannuation funds are keen to require greater risk assessment
This is an interesting topic. Many shareholders of public companies have long held that strategic risks should be reported as well as simply financial. After all even core operational risks give rise to the strategic risks within the register, and it is often these types of risks - when left untended - that have taken down companies.
Consider a recent case in New Zealand where a major electricity wholesaler mis-judged the impacts of a well forecast dry and cold winter - two attributes which make for a dangerous scenario in terms of lake levels. Combine this with the company's slowness to recognise and negotiate their hedging position at the expiry of the previous contract. Result? The company survived . . . just, and only after selling off their entire retail division. They lost $300 million in three months - not including the impacts on their share price.
Now consider that such risks are not required to be reported.
Financial management alone does not maketh the company, a fact lost on many CFO's and board members alike. Many are still grappling with the advent of IFRS - and pining for the good old days of GAAP and industrial/manufacturing based economies.
Still, how much reporting is too much? And if the executive and management can't get on with managing the business - as they are both qualified and mandated to do - without being interrupted every two minutes, then what kind of business will they have anyway?
No one doubts it is a question of balance, but whose version of "balance" should public companies adopt?
posted by Anonymous at
9:19 AM
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