Value and Risk: Enterprise Risk Management in Statoil

In Statoil, understanding and managing risk is today considered a core value. This principle has been duly integrated in the organization, and is inscribed in steering documents as well as in a booklet handed out to all employees, describing core values, corporate governance, the operating model and corporate policies. The company has developed a sophisticated approach to ERM that centers on the principle of value creation. ERM is thoroughly embedded in the business units’ way of doing things, and it appears to enjoy the wholehearted support of Statoil’s executive officers and board of directors. Statoil has, in other words, managed to make ERM into something that makes a real difference. To gain insights about the success factors behind this outcome, we will investigate how Statoil has dealt with the four main general tasks that fall on executives responsible for ERM: 1) make sure that there is an adequate process for identifying, managing and reporting risks throughout the company, 2) act as support function to business units in this work, 3) detect and counteract risk management decisions that are suboptimal for the company as a whole, and 4) analytically aggregate risks to support decision-making concerning the company’s total risk profile

Why FX Risk Management Is Broken–and What Boards Need to Know to Fix It

This article provides a comprehensive critique of current corporate foreign exchange risk management (FXRM) practices. The authors characterize much of FXRM as a “legacy” activity, a set of outdated, often decentralized and “earnings-driven” methods and procedures that have not been subjected to rigorous cost-benefit analysis at the enterprise level. And according to the authors, the costs of poorly designed and executed FXRM have increased sharply in recent decades because of the growing demand by analysts and investors for cost-efficiency, transparency, and predictability.After discussing six ways in which the FX policy of most large multinationals fails to serve the interests of their investors and other important stakeholders, the authors offer the following: (1) a restatement of the goals of FXRM; (2) an illustration of various ways of implementing a largely (if not completely) centralized approach to FXRM; (3) a proposal for aligning performance evaluation and executive pay with the goals of FXRM; (4) suggestions for improving decision-support tools in relation to FXRM; (5) proposals for integrating FXRM into an enterprise-wide risk management system, which include shifting responsibility for FXRM from the Finance/Treasury group to a centralized risk committee (typically under a Chief Risk Officer who reports to the board of directors); and (6) suggestions for improving communication of a company's risk management policies and practices to investors and other stakeholders