Risk Insider: Elizabeth Carmichael

Putting Your Organizational Values Where Your Risks Are

By: | July 8, 2016 • 3 min read
Elizabeth Carmichael is the director of compliance and risk management for Five Colleges Inc., which includes Amherst, Hampshire, Mount Holyoke, and Smith College. She can be reached at [email protected]

I think that many risk managers (myself included) struggle with guiding their organizations to choose what risks to prioritize for management.

Even when we work for an organization that has a highly functional ERM process, and senior leaders are actively engaged in the identification, management and mitigation of risks, can and/or should compliance and risk officers be leaders in helping them set their priorities?

If the answer to that question is “yes,” how can we be better leaders? We can do it by identifying and aligning risk management as a cornerstone of institutional values.

One of the things that has always bothered me about “reputational risk” is that it measures how the outside world will view the institution (by measuring lost revenue, increased costs, or reduced shareholder value) if it fails to address a particular issue.

This has become a shorthand of sorts for measuring the ethical aspects of failure to address some kinds of risks. The problem is, it doesn’t address the actual values of the organization. Reports have been published on the atmosphere at Penn State where alumni and other donations actually increased in support of the university after the news of the Sandusky sex scandal broke.

Other schools, like Dartmouth University, may have seen a drop in applications from women because of sexual assaults and harassment, but given the strength of the school, it probably hasn’t impacted the bottom line. The outcomes of bad press are impossible to predict.

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There is no discussion, no scoring, in the enterprise risk management process of “How antithetical to our institution and our values would it be if something happened because we failed to address this risk?”

Or, “What are our institutional values and how does this risk conflict with our values?”

We should ask ourselves how risks might be scored if these questions replaced, “What is the reputational risk?”

Assuming — and admittedly it may be a big assumption — that organizations want to align their operations with their stated and implied values, the ERM process can and should be used to support this objective.

Even when we work for an organization that has a highly functional ERM process, and senior leaders are actively engaged in the identification, management and mitigation of risks, can and/or should compliance and risk officers be leaders in helping them set their priorities?

Now, if your company’s sole value and objective is to sell products more cheaply than any other company, ethics and values will not be likely to have any traction with company leadership on risk matters.

But if your company or organization has a mission, vision and/or values statement, you will have a place to start.

Reputation, on its most basic level, is a measure of trust — how well does the organization deliver the products and services, the values, which it promises?

This applies to both the organization’s customers and employees.

Do employees know what the organization’s values are? Are policies, procedures and risk mitigation efforts aligned with its values?

Compliance officers and risk managers may find that, when faced with opposition on a risk mitigation effort or prioritization, that helping mangers understand how the mitigation helps the organization’s actions align with its values will break down the resistance.

I’ve seen it work; try it!

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Risk Insider: Nir Kossovsky

New Tools to Bolster Reputation Risk Management

By: | July 5, 2016 • 3 min read
Nir Kossovsky is the Chief Executive Officer of Steel City Re. He has been developing solutions for measuring, managing, monetizing, and transferring risks to intangible assets since 1997. He is also a published author, and can be reached at [email protected]

The American Law Institute (ALI) is formalizing governance law principles that will include legal strategies to signal stakeholders and enhance institutional reputations for governance, risk management and compliance.

ALI’s principles, according to the Institute, hold an authority nearly comparable to that accorded to judicial decisions. No board, once advised, could safely ignore or deny these guidelines.

One example of these emerging standards involves monitorships. These are court-ordered corporate oversight mechanisms to enforce compliance after ethics or safety breaches or any other shortcoming that could impact a company’s reputation and by natural extension, reputation value.

The legal community’s recognition of the value of actions designed to send signals to stakeholders and impact reputation is a major sea change only 35 years in the making.

As reported in the blog JOTWELL, a review of legal scholarship sponsored by the University of Miami School of Law, monitorships are also now recognized as a legal means of signaling ongoing reputation rehabilitation.

The modern-day monitor, like a gatekeeper, may lend reputational capital to the wrongdoer, but in this context to facilitate rehabilitation or … (other) public relations benefit(s).

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According to Notre Dame’s Veronica Root, Associate Professor of Law, examples of modern-day monitorships include the court-ordered events following Penn State’s sexual abuse scandal, Apple’s anti-competitive behavior, and Bank of America’s improper foreclosures on hundreds of thousands of homeowners.

They provide outsiders a unique source of information about the efficacy of the tarnished organization’s efforts to remediate misconduct.

Responding to a need for a set of recommended standards and best practices on the law of compliance and risk management (GRC), ALI’s recommendations are primarily addressed to legislatures, administrative agencies, and private actors such as the law firms that advise boards.

The legal community’s recognition of the value of actions designed to send signals to stakeholders and impact reputation is a major sea change only 35 years in the making.

It affirms that behavioral economic principles are becoming mainstream among leading lawyers working in the governance, risk and compliance area. It is a formal acknowledgement that governance battles in the courts of public opinion are as important as battles in the courts of law.

The prior legal mindset was solidified in 1947 in Judge Learned Hand’s formula where if the expected harm exceeded the cost to take the precaution, then the company must take the precaution, whereas if the cost was less, then it did not have to.

This standard, named “BPL,” was severely tested in 1981 with the legendary Ford Pinto case. Based on a BPL analysis, Ford legally chose not to make the Pinto safer.

The BPL defense led to Ford’s being lambasted for insensitivity to the risk-cost trade-offs associated with the risk of immolation from rear-impact crashes of the Pinto.

Yet, tied to the BPL formula, the mainstream legal community found it difficult to factor in the cost of lost reputation — the added costs of harm due to lost sales, weakened talent retention, damaged supplier relationships and other damage.

For years, the legal community railed at a legal system that allowed companies to be punished in situations in which they undertook “responsible risk analyses.”

The ALI’s forthcoming guidelines redefines “responsible risk analysis” to acknowledge the reality that in matters of governance, risk management and compliance that all depend on trust, to paraphrase former Federal Reserve Chairman Alan Greenspan, reputation has a significant economic value.

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Sponsored Content by Chubb

Electronic Waste Risks Piling Up

As new electronic devices replace older ones, electronic waste is piling up. Proper e-waste disposal poses complex environmental, regulatory and reputational challenges for risk managers.
By: | July 5, 2016 • 4 min read
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The latest electronic devices today may be obsolete by tomorrow. Outdated electronics pose a rapidly growing problem for risk managers. Telecommunications equipment, computers, printers, copiers, mobile devices and other electronics often contain toxic metals such as mercury and lead. Improper disposal of this electronic waste not only harms the environment, it can lead to heavy fines and reputation-damaging publicity.

Federal and state regulators are increasingly concerned about e-waste. Settlements in improper disposal cases have reached into the millions of dollars. Fines aren’t the only risk. Sensitive data inadvertently left on discarded equipment can lead to data breaches.

To avoid potentially serious claims and legal action, risk managers need to understand the risks of e-waste and to develop a strategy for recycling and disposal that complies with local, state and federal regulations.

The Risks Are Rising

E-waste has been piling up at a rate that’s two to three times faster than any other waste stream, according to U.S Environmental Protection Agency estimates. Any product that contains electronic circuitry can eventually become e-waste, and the range of products with embedded electronics grows every day. Because of the toxic materials involved, special care must be taken in disposing of unwanted equipment. Broken devices can leach hazardous materials into the ground and water, creating health risks on the site and neighboring properties.

Despite the environmental dangers, much of our outdated electronics still end up in landfills. Only about 40 percent of consumer electronics were recycled in 2013, according to the EPA. Yet for every million cellphones that are recycled, the EPA estimates that about 35,000 pounds of copper, 772 pounds of silver, 75 pounds of gold and 33 pounds of palladium can be recovered.

While consumers may bring unwanted electronics to local collection sites, corporations must comply with stringent guidelines. The waste must be disposed of properly using vendors with the requisite expertise, certifications and permits. The risk doesn’t end when e-waste is turned over to a disposal vendor. Liabilities for contamination can extend back from the disposal site to the company that discarded the equipment.

Reuse and Recycle

To cut down on e-waste, more companies are seeking to adapt older equipment for reuse. New products feature designs that make it easier to recycle materials and to remove heavy metals for reuse. These strategies conserve valuable resources, reduce the amount of waste and lessen the amount of new equipment that must be purchased.

Effective risk management should focus on minimizing waste, reusing and recycling electronics, managing disposal and complying with regulations at all levels.

For equipment that cannot be reused, companies should work with a disposal vendor that can make sure that their data is protected and that all the applicable environmental regulations are met. Vendors should present evidence of the required permits and certifications. Companies seeking disposal vendors may want to look for two voluntary certifications: the Responsible Recycling (R2) Standard, and the e-Stewards certification.

The U.S. EPA also provides guidance and technical support for firms seeking to implement best practices for e-waste. Under EPA rules for the disposal of items such as batteries, mercury-containing equipment and lamps, e-waste waste typically falls under the category of “universal waste.”

About half the states have enacted their own e-waste laws, and companies that do business in multiple states may have to comply with varying regulations that cover a wider list of materials. Some materials may require handling as hazardous waste according to federal, state and local requirements. U.S. businesses may also be subject to international treaties.

Developing E-Waste Strategies

Companies of all sizes and in all industries should implement e-waste strategies. Effective risk management should focus on minimizing waste, reusing and recycling electronics, managing disposal and complying with regulations at all levels. That’s a complex task that requires understanding which laws and treaties apply to a particular type of waste, keeping proper records and meeting permitting requirements. As part of their insurance program, companies may want to work with an insurer that offers auditing, training and other risk management services tailored for e-waste.

Insurance is an essential part of e-waste risk management. Premises pollution liability policies can provide coverage for environmental risks on a particular site, including remediation when necessary, as well as for exposures arising from transportation of e-waste and disposal at third-party sites. Companies may want to consider policies that provide coverage for their entire business operations, whether on their own premises or at third-party locations. Firms involved in e-waste management may want to consider contractor’s pollution liability coverage for environmental risks at project sites owned by other entities.

The growing challenges of managing e-waste are not only financial but also reputational. Companies that operate in a sustainable manner lower the risks of pollution and associated liabilities, avoid negative publicity stemming from missteps, while building reputations as responsible environmental stewards. Effective electronic waste management strategies help to protect the environment and the company.

This article is an annotated version of the new Chubb advisory, “Electronic Waste: Managing the Environmental and Regulatory Challenges.” To learn more about how to manage and prioritize e-waste risks, download the full advisory on the Chubb website.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Chubb. The editorial staff of Risk & Insurance had no role in its preparation.




With operations in 54 countries, Chubb provides commercial and personal property and casualty insurance, personal accident and supplemental health insurance, reinsurance and life insurance to a diverse group of clients.
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