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The merits of risk management: compliance as an investment
In today’s corporate world, it is fundamentally important for enterprise leadership to recognise, understand and manage risk. Regulatory compliance is necessary but not sufficient, because there are many real and significant areas of risk that can have existential impacts if problems arise.
These include: brand/reputation damage and loss of shareholder value, as well as direct costs through product recalls; reduced cash flow; legal challenges; and compensation. Water contamination occurring in both piped supply and bottled water sources over the past couple of decades has been found to incur direct costs at least in the tens of millions, if not hundreds of millions, of dollars to the suppliers.
One of the iconic disasters was the 1990 Source Perrier failure: bottled water contaminated with benzene went undetected for six months, when carbon filters clogged and a warning light failed, leading to the recall of 160 million bottles of water from 120 countries. Although there seemed to be no actual illness as a result, the reputational damage meant the company traded at a loss for more than a year.
Questions exercising the minds of all stakeholders are: how far should risk management go, and will there be a payback? An international survey of 46 multinational businesses by the Ponemon Institute demonstrated that, on average, the benefit of avoiding risk was 2.65 times the cost of addressing it up-front.
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