Risk Management
Business Lesson 8
New Vocabulary
Crisis management
антикризисное управление
Stock Analyst
фондовый аналитик
Theft
воровство, кража
Flood
наводнение
Hazard
опасность, риск
Myriad
бесчисленный
Strategic Risk
стратегический риск
Shortfall
дефицит
Operational Risk
производственный риск
Losses
убытки, потери
Financial risk
финансовый риск
Hazard risk
риск опасности
Enterprise Risk Management (ERM)
общеорганизационное управление рисками
Viability
жизнеспособность
Mitigate
смягчать, уменьшать
Fluctuation
колебание, неустойчивость
Holistic approach
комплексный подход
Insurable
страховой
To threaten
угрожать
Continuity
непрерывность, целостность
Abuse
злоупотребление
Perpetrator
злоумышленник; правонарушитель, преступник
Reversal
полное изменение
Desist
переставать, прекращать, воздерживаться
Litigate
судиться, оспаривать
Pursue
гнаться, преследовать, следовать (за целью)
Passing off
Ведение дел под чужим именем
Cybersquatting
киберсквотинг
Hacking
хакерство
Malicious
злобный, злонамеренный
Risk management framework
система управления рисками
Risk Criteria
критерии риска
Risk assessment
оценка степени риска
Likelihood
вероятность
Risk sharing
распределение рисков
Risk Financing
финансирование риска
Monitoring
мониторинг, наблюдение
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Read the following article and practise new words and expressions
Enterprise Risk Management
Although most companies have their bases covered should they meet with fire, theft or flood, such hazards represent only a small portion of the myriad risks they face. A survey of the Fortune 1000 found that 58% of companies that suffered a stock drop traced it to strategic risks, most commonly competitive pressures and a customer shortfall. Operational risks accounted for losses at 31% of the companies, and the remaining 11% attributed their losses to financial risks. None of the businesses cited hazard risks as the reason for their losses.

To begin dealing proactively with financial, operational and strategic risks, organizations can adopt enterprise risk management (ERM). In a nutshell, ERM allows organizations to examine all the risks they face, measure the potential impact of those risks on the long-term viability of the company, and take the appropriate steps to manage or mitigate those risks. In general, the range of risks most businesses face includes hazard risks, such as property damage and theft; financial risks, such as interest rate and foreign exchange fluctuations; operational risks, such as supply chain problems or cost overruns; and strategic risks, such as misaligned products. The key to ERM success is to address all those risks in an integrated fashion.

ERM is a compelling tool for a number of reasons. First, the process of identifying, quantifying and prioritizing risks makes them more prominent and real to executives and managers who may not have given risk management significant thought before. Second, a holistic approach to risk management takes the entire concept beyond the traditional parameters of what is insurable. It greatly expands the company's definition of risk to include anything that threatens the organization's continuity. This approach also divides the concept of risk into those risks that can help a company grow and those that will only lead to loss. Risk identification at the level of granular detail is not necessary and can even be detrimental to a thoughtful ERM effort. 'If a risk does not impact company performance, don't look at it,' says a risk management consultant. 'If someone smashes a company car, it is probably not material to business performance.
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Listen to an interview with Eric Dezenhall, author of Damage Control.
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Read the following article.
Damage Control
Crisis management, while a rare corporate discipline, is nevertheless a fundamental one because the future of the enterprise is on the line. A grieving widower appeared on Larry King Live in 1992 and speculated that his wife's terminal cancer was caused by a cellular telephone: a leading cell phone manufacturer saw its stock drop by 20 percent in the following days. Merck's recall of its arthritis drug Vioxx cost the company roughly $750 million in the fourth quarter of 2005 alone. A Merrill Lynch stock analyst estimated that damages against the company could run between $4 billion and $18 billion. Perrier was toppled from its perch atop the bestselling bottled water mountaintop after the chemical benzene was found in its product. And when the Audi 5000 was accused of 'sudden acceleration', its sales evaporated and the Audi brand essentially vanished from the U.S. market for a decade.

WHO SURVIVES?

Companies (and individuals) that survive crises tend to have certain features in common, features that are often evident in the first moments of an engagement, is

They have strong leaders who have broad authority to make decisions.

They question conventional PR wisdom and do not worship at the altar of feel­good gurus who espouse reputation management', the that corporate

redemption follows popularity.

They are flexible, changing course when the operating climate shifts (which it usually does).

They commit significant resources to the resolution of a crisis with absolutely no guarantee that these resources will provide results.

They have a high threshold for pain, recognizing that things may get worse before they get better.

They think in terms of baby steps, not grandiose gestures, which explains Rome's success, after all.

They know themselves, and are honest about what kinds of actions their culture can - and cannot - sustain.

They believe that corporate defence is an exercise in moral authority, and that their critics are not necessarily virtuous simply because they purport to be

standing up for the 'little guy'.

They are lucky, often catching unexpected breaks delivered by God, nature, Fortune, or some other independent factor.

Enterprises and individuals under siege need all the help they can get these days.

Since the tech bubble burst and corporate scandals have come to fill the media vacuum once occupied by lionizing of messianic CEOs, it seems as if no one's exempt from hostile scrutiny. Crises are now judged not only by financial (Did the company recover?) and ethical (Was the public welfare served?) standards, but by whether the company handled its crisis effectively in the eyes of Wall Street, Madison Avenue, the plaintiff's bar, and twenty-four-hour-a-day cable news. Inevitably, the airwaves are filled with experts from various fields who will opine that the crisis is being mismanaged. (Saying all's well' doesn't make for very good TV.)

We endorse a political model of crisis management versus the more conventional public relations approach. The fundamental difference is that the political model,

which is practiced in our hometown of Washington, D.C., assumes the threat of motivated adversaries while the public relations model tends to view crises as organic and resolvable through good communications. In real crises there are often opponents - a mirror image of your own crisis management team - that want to torpedo you. That opposing team consists of competitors, plaintiffs' lawyers, the news media, politicians and regulators, short-sellers, multi-million dollar non­governmental organizations (NGOs), corporate stalkers, whistleblowers and bloggers. These opponents don't care whether you do the right thing': they care about defeating you.
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Listen to an interview with Li Bai, an expert on risk management.
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Listen to an interview with Steve Leach, Managing Director of Brand Intelligence.
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Your homework is to write the summary of this topic, minimum 15 sentences, using new words and expressions
Write your own beautiful success story!
Translate the following sentences into English
the first set is mandatory
Compare your answers to the answer key
Answers to the text 1 task 1
  1. Hazard risks: fire, theft, flood, property damage, smashing a company car
  2. Strategic risks: competitive pressures, customer shortfall, misaligned products
  3. Operational risks: supply chain problems, cost overruns
  4. Financial risks: interest rate and foreign exchange fluctuations
Answers to the text 1 task 2
  1. a
  2. c
  3. b
  4. a
  5. c
  6. b
  7. a
  8. c
  9. b
  10. a
  11. c
  12. b
Audio 1 answer key
  1. In the White House under Ronald Reagan. His approach to crisis management is political rather than commercial.
  2. Always apologize, always show concern, always instantly recall your product.
  3. People think that a sincere apology will be accepted and the wrongdoing will be forgiven, but Dezenhall feels that apologies are usually ineffective.
  4. He recommends fighting the accusations, because he believes whoever attacks, wins; whoever defends, loses.
  5. He gave it as an example of how by defending himself against a false accusation, Steve would still be generating negative publicity.
  6. A villain, a victim and a vindicator. In a crisis, if you can find a vindicator and be seen as a victim rather than a perpetrator, you are forgiven far more easily.
Audio 1 tapescript
INTERVIEWER: If you're in a student loan industry or in another industry under pressure, you may call in the services of our next guest . Eric Dyson Hall is in the business of making bad news go away : he's co-authored a new book called " Damage control" why everything you know about crisis management is wrong.

Mr. Dyson Hall was initiated into the world of public relations in the Reagan White House and he has some different advice for his clients about how to deal with a crisis.

MR. DYSON HALL: In one of my chief criticisms of crisis management is through these rigid Mother Goose rules of the PR industry applies that are wrong!

INTERVIEWER: Such as?

MR. DYSON HALL: Always apologize , always be concerned , always instantly recall your products . This rigid dogma is simply wrong !Now there are certain general rules that we follow ..

INTERVIEWER: Let me just check out why there're wrong : "always apologize" - that's something that's often said about politicians for example . If you get in some scandal , just say you did something wrong so you're sorry , get it over with , don't let it go on and on and on .

Why is that the wrong advice ?

MR. DYSON HALL: Sometimes it's the right advice but often it's wrong.

What we would like to believe is that apologies are affective , the fact is we don't see a lot of evidence in that .

Jim Bakker apologized and lost his pulpit.

" I must apologize " lost his job .

INTERVIEWER: Don Mynes the radio talkshow host did say he was sorry many many times what should he have done if he was going to you for advice ?

MR. DYSON HALL: First of all I think he was toast the minute the words came out of his mouth . The track record of recovering from racial remarks is awful , basically because corporate advertisers do not want to be in a battle with Al Sharpton and Jesse Jackson never ever ever , because they know they won't win !

INTERVIEWER: Well, talk a little about some of the techniques you do apply .

MR. DYSON HALL: Well I think in our culture whoever attacks - wins , whoever defeats - loses.

If I came into your studio and said look listeners I want everybody to know that Steve stole my wallet but suddenly all eyes and ears around you .

INTERVIEWER: And even if I say I didn't steal your wallet , I am still talking about stealing your wallet !

MR. DYSON HALL: Exactly! Every crisis has the three characters : there's a villain , there is a victim and there's a vindicator and the only way the story the crisis changes is if you are able and you're not always able to change the characters , example: Wendy's the best food company was accused of selling chili that had a finger in it!

The narrative of that story didn't change until it was revealed that somebody put a finger in the chili.

INTERVIEWER: Yeah initially Wendy's was the villain , somebody out there eating was the victim and you're waiting for a vindicator ,some investigation!

MR. DYSON HALL: That's exactly right and so a lot of times when you're not seen as the perpetrator of the crisis you are forgiven far more easily than if you were seen as the villain.

INTERVIEWER: You mean they held on long enough to get out of the perpetrator role and maybe become sort of a victim after a while?

MR. DYSON HALL: They were essentially a corporate victim.

It's hard to be a corporate victim but they were saying recall the product and they didn't and they were absolutely right not to.

INTERVIEWER: If you are truly innocent , you are saying, find it out , insist on your innocence because you may lose your chances otherwise but I would imagine there are people who would take that advice and even if they're totally guilty they're going to deny it . Stonewall , Lied ...

MR. DYSON HALL: Well you are dealing with one of the most sensitive points of my business which is the clients I don't take .

You can't take someone who is hateful and who is totally guilty and who has no interest in repenting and put lipstick on a pig.

INTERVIEWER: There must be colleagues in your business who feel otherwise I might say for example even a guilty person needs a lawyer and maybe a guilty person also needs a PR agent.

MR. DYSON HALL: and I disagree I believe that the Constitution allows you a ride to a legal defense, the constitution does not allow you the right to a good reputation.

INTERVIEWER: Eric Diesel all is the author of damage control thanks very much for coming by

MR. DYSON HALL: Thanks for having me.
Answers to the text 2 questions
  1. The cell phone manufacturer's stock dropped by 20%, Merck lost roughly $750 million in the fourth quarter of 2005 alone and was expected to have to pay between $4 billion and $18 billion in damages, Perrier lost its position as market leader, and Audi had very few sales in the US market for ten years. Dezenhall refers to them as examples of how crisis management can be crucial to a company's survival (and by implication, how easily his PR company's fees are justified!).
  2. In the past, crisis management was judged by financial and ethical standards; now a company's handling of a crisis is judged by its stock price, its advertising campaigns, its success or failure in court and its image on TV.
  3. The political model of crisis management assumes that a crisis is motivated by an opponent and must be resolved by fighting, rather than being the result of accident or misfortune and resolvable through good communications.
  4. Dezenhall seems to be rather cynical about the media: he refers to the hostile scrutiny used to fill the media vacuum on twenty-four-hour- a-day cable news, and suggests that radio and TV encourage experts to criticize crisis management on the grounds that successfully resolving crises doesn't make for very good TV.
Audio 2 answer key
  1. in simple terms
  2. If you put this in simple human terms
  3. From a human point of view
  4. Financially speaking
  5. in global terms
  6. From the point of view of the banking industry
Audio 2 tapescript
INTERVIEWER: So, Lee, you are an expert in Risk Management. Could you start giving us a definition of what risk management is?

MR. LEE BAI: Risk Management is the attention that organizations must pay in simple terms to things that can undo go wrong. It covers the financial context, technology, human activities, professional and expert activities and the interface between all of these things.

INTERVIEWER: So, it's quite wide ranging then.

MR. LEE BAI: Oh, absolutely.

INTERVIEWER: Do you have a specific example? You mentioned the financial context.

MR. LEE BAI: Well, in 2007 the United States subprime mortgage market crashed

INTERVIEWER: Oh.

MR. LEE BAI: This market was created to help those who either did not have much money or who had a bad credit risk to get onto the mortgage and property ladder. If you put this in simple human terms, if somebody is a bad risk, it would not lend them money this market turned that idea on its head and the worst the risk effectively the more the banks lent them. Not just in terms of the sum of money but also the interest rate that was charged to it

INTERVIEWER: So, you mean the banks charge these people higher interest rates. Why did they do that?

MR. LEE BAI: To make more money. Out of those who could not pay in the first place. The logical thing would be that if you haven't got much money, you stand little chance of making a repayment. If you haven't got much money and you were asked to repay a huge sum of money at higher rate of interest. Logically you are never going to make those repayments and the bank is never going to get its money back.

INTERVIEWER: What kind of risk management systems that these banks have in place?

MR. LEE BAI: They simply assumed that these people would make the repayments. And that is the extent that they went to for me human point of view they never studied the likely behavioral response that somebody who is short of money with a large loan would have huge difficulty repaying it.

INTERVIEWER: Hmm.

MR. LEE BAI: Financially speaking, some of the banks saw the problem coming and did their best to parcel up the bad debts and sell them on in some cases to banks in other countries

INTERVIEWER: So, in global terms this affected everyone.

MR. LEE BAI: Oh yes. It was a global phenomenon and its effects were felt worldwide. The dead parcels had a high asset value because there were high repayments attached to them. But in many cases there was a minimal chance of realizing those assets so it became a global problem from the point of view of the banking industry you can see the logic. But if you look at it from the point of view of the ordinary human being it was a disaster

INTERVIEWER: I see could you just sum up the banks mistake for us in one sentence?

MR. LEE BAI: The mistakes were that they assumed. The money would be repaid once it had been contracted and they also assume that the asset value could be sold on meaning that if anything did go wrong they will be absolved of all responsibility and also all come back

INTERVIEWER: That's very interesting.
Audio 3 answer key
      1. abuse
      2. perpetrators
      3. reversal
      4. monitor
      5. issue
      6. desist
      7. litigate
      8. pursue
Audio 3 tapescript
INTERVIEWER: Steve, your website "Brand Intelligence" claims that digital infringements or costing E-businesses $90 million a day.

MR. SYEVE LEACH: That's right.

INTERVIEWER: So, what sort of risks are you open to these days if you're doing your business online?

MR. SYEVE LEACH: Well, if you have a successful E-business, one problem you're very exposed to his passing out for ambush marketing. You wake up one day to find someone else as a website which is masquerading as your company and making money by trading on your company's name off and they will even pirate your own text images and logo.

INTERVIEWER: Nasty.

MR. SYEVE LEACH: Yeah. And not very easy to deal with. Another classic is cybersquatting that's when you have an established offline brand, and you decide to start an online business to reach more customers. Much to your surprise you then find out that someone else is freeloading on your reputation by using a domain name featuring your brand name.

INTERVIEWER: And what about hackers?

MR. SYEVE LEACH: Yes, of course. They are a major problem. And it's still growing as the Internet gets larger and larger. Everything from simply defacing web pages to cracking credit card and information databases. Every year nearly half of UK businesses suffer a malicious security incident or breach. But there are also more unexpected risks what we call "protest issues". If your business relies on the Internet to reach an instant worldwide audience, you're vulnerable to protests and rumors of all kinds. It's incredibly easy to incite customers to boycott a company or its products, to try to manipulate your stock price or simply to bombard a defenceless mailbox with hate.

INTERVIEWER: Sounds like it's a real jungle out there. But you have solutions, right?

MR. SYEVE LEACH: Right. We used a combination of unique highly sophisticated software and specialist analysis to locate and report areas of brand risk, damage and abuse online. For instance, we can scan the Internet to find anyone who is illegally using your logo even if it has been modified.

INTERVIEWER: But what can you do to stop this kind of abuse?

MR. SYEVE LEACH: Once we've identified the problem there are lots of solutions. We track perpetrators, we initiate reversal and then monitor progress.

INTERVIEWER: Initiate the reversal? Can you be more specific?

MR. SYEVE LEACH: Each individual case is different, and we adapt to each customers needs and wishes. At a basic level we issue cease and desist orders to infringing site owners to get them to remove their sites. We could also get sites remove from ISP's and search engines.

INTERVIEWER: So, if someone googles my brand only the real site will come up, not the fakes?

MR. SYEVE LEACH: Yes, and in more serious cases we get our expert legal trademark partners involved to litigate for damages or pursue criminal and civil action.
The first set
  1. In the field of CRISIS MANAGEMENT, one of our priorities will remain, of course, the situation in the Balkans.
  2. In many cultures, the word vote can mean a MYRIAD of things.
  3. These guarantees should cover the FINANCIAL RISK.
  4. Minimum FLUCTUATION or smallest increment of price movement.
  5. Health teacher says ABUSE is passed down.
  6. The two Committees must therefore PURSUE their efforts.
  7. In the initial phase, project objectives and an implementation plan have been established, which will form the basis of the RISK MANAGEMENT FRAMEWORK.
  8. Assessed alternative RISK FINANCING mechanisms for worldwide vehicle insurance policy.
  9. I am their lawyer, not a STOCK ANALYST.
  10. Mr. Jean-François Casanova, CEO, STRATEGIC RISK Management, France
The second set
  1. Note: HAZARD RISK represents a cumulative score based on the risk of cyclones, floods, landslides and drought.
  2. Another feature was the HOLISTIC approach to enterprise development.
  3. I think he's the PERPETRATOR.
  4. If Mandy is PASSING OFF work as her own, what else is she lying about?
  5. More on RISK CRITERIA would definitely help.
  6. Then we can offer using our Mobile Media MONITORING Service.
  7. I understand you had a corporate THEFT.
  8. The accumulated SHORTFALL now stands at $194 million.
  9. Efforts are also underway to develop an ENTERPRISE RISK MANAGEMENT (ERM) Policy for the Organization.
  10. But in the meantime, that's a list of your claimed INSURABLE property.
The third set
  1. This would imply a total REVERSAL of the current situation.
  2. UN-Women has started the RISK ASSESSMENT process.
  3. The company alleges that these documents were destroyed in the FLOOD.
  4. An OPERATIONAL RISK management policy was introduced in all missions.
  5. New dangers and challenges THREATEN them all equally
  6. If I want something to cease or DESIST, it does.
  7. With all due respect, I have more experience HACKING - foreign systems.
  8. А certain LIKELIHOOD of a detrimental effect cannot be overlooked.
  9. Those HAZARD themes are listed in paragraph 49.
  10. LOSSES due to sickness or accidents.
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