The Theory and Practice of Corporate Risk Management

20 Pages Posted: 16 Dec 2009

See all articles by Henri Servaes

Henri Servaes

London Business School; Centre for Economic Policy Research (CEPR)

Ane Tamayo

London School of Economics & Political Science (LSE)

Peter Tufano

University of Oxford - Said Business School; National Bureau of Economic Research (NBER); University of Oxford - Said Business School

Abstract

Three areas of opportunity were clearly identified as having potential to improve corporate risk management in ways that increase firm value over an entire business cycle: Drawing on a global survey of over 300 CFOs of non-financial companies, the authors report that while most CFOs felt that their risk management programs have significant benefits, the risk management function in general needs more attention. A large percentage of the finance executives surveyed acknowledged that the most important corporate risks extend far beyond the CFO's direct reports, and that risk-based thinking is not incorporated into everyday business activities or corporate strategies. A large majority of executives also said they were seeking a more widespread understanding of risk throughout their organizations - and many confessed their firms' inability, or lack of interest, in evaluating their own risk management functions. At the same time, the efforts of most companies to develop enterprise-wide risk management (ERM) programs were said to fall well short of the comprehensive and highly coordinated programs envisioned by the proponents of such programs. The financial crisis of 2008 and the resulting recession caught many companies unprepared and, in so doing, provided a stark reminder of the importance of effective risk management. While academic theory has long touted the benefits of risk management, companies have varied greatly in the ways and extent to which they put theory into practice.

Suggested Citation

Servaes, Henri and Tamayo, Ane Miren and Tufano, Peter, The Theory and Practice of Corporate Risk Management. Journal of Applied Corporate Finance, Vol. 21, Issue 4, pp. 60-78, Fall 2009. Available at SSRN: https://ssrn.com/abstract=1523985 or http://dx.doi.org/10.1111/j.1745-6622.2009.00250.x

Henri Servaes (Contact Author)

London Business School ( email )

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Centre for Economic Policy Research (CEPR)

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Ane Miren Tamayo

London School of Economics & Political Science (LSE) ( email )

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Peter Tufano

University of Oxford - Said Business School ( email )

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National Bureau of Economic Research (NBER)

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University of Oxford - Said Business School ( email )

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Great Britain
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