By DAN REYNOLDS, senior editor of Risk & Insurance®
The statistical collision was eye-catching.
The vast majority of attendees at a mergers-and-acquisitions presentation at the Risk and Insurance Management Society Inc's (RIMS) annual conference in Vancouver on May 4 raised their hands when they were asked whether their company was considering a merger or an acquisition.
But when asked whether their risk management department was adequately positioned to manage the risk of that merger or acquisition, just a few hands went up.
So, what's wrong with this picture? Do risk managers really not belong at the table when a merger or acquisition is being considered?
"I struggle to see how you get a seat at the table," said one risk manager in the audience.
One thing for sure is that M&A activity is on the rise and in a big way.
According to Jim Herrmann, a senior managing director at Chicago-based Aon Corp., a ton of capital out there is looking for something to do: about $500 billion in private-equity money sitting on the sidelines in the United States, according to Herrmann, and about $1 trillion globally.
And 2011 is shaping up to be the biggest year in M&A in 10 years, according to Herrmann.
Of course risk management should have a voice, but it's a question of being ready to exercise that voice when called on. You are not the dealmaker, and you shouldn't be the deal breaker, according to Eric Stocker, an associate director of risk management with Genentech, which was acquired by the giant Swiss drug maker Roche in 2009, when the Swiss company bought the remainder of Genentech's outstanding stock for $46.8 billion.
"It's the issue of being sure you are prepared and you are flexible," Stocker said.
It's also a question of communicating with the rest of the members of your corporate team and knowing what their pain point is, according to Cindy Slubowski, a senior manager of risk and insurance with Northfield, Ill.-based Kraft Foods.
Slubowski had her work cut out for her when Kraft set about buying the English candy maker Cadbury in late 2010 and completed the deal in early 2011.
When the chief financial officer and other members of the corporate team negotiate a deal, they need to know just how big a concern a risk manager has before letting them into the conversation. It's the risk manager's job, according to Slubowski, to determine what the company's pain point is and to move in when the risk manager thinks it's in play.
That is, the dealmakers need to establish a threshold to make sure that the risk manager isn't bringing up concerns unnecessarily.
But Slubowski was also very proactive in doing her homework and showing the other members of her team why they needed to listen to her and when they needed to listen to her.
"There is a fine line between getting in the way and doing your job," is the way one member of the audience put it.
May 6, 2011
Copyright 2011© LRP Publications