Marsh: Risk The Responsibility Of All Chief Executives

Insurance broker Marsh said it has created a risk think tank aimed to alert chief executives about risks their businesses face and few understand, judging by a recent survey.

"If a natural disaster were to occur, the CEO and the board are now held accountable," said John Merkovsky, Marsh global leader for Risk Consulting, during a conference call today. "It is no longer acceptable for a CEO to just turn around after a disaster and say, 'It's just Mother Nature. I had no idea that could have happened.'"

Risk managers, he pointed out, were the sole executives responsible for securing insurance for the corporation at the best price, he said. But the risk landscape has changed, and with it a wider responsibility that extends to the chief executive leadership.

Marsh said it established The Center for Risk Insights to bring these new risk realities to executives and help them gauge the impact of what many executives, according to a survey, view as unlikely risk events.

According to a Marsh panel of experts, who are part of the think tank, risk events could have devastating effects on businesses.

The survey, launched by The Center and conducted by Public Opinion Strategies, surveyed 101 board-level executives of Fortune 1000 companies by telephone from June 6-29. The survey asked executives about the kinds of risks they are concerned about, their preparation, and what impact those risks could have on their business.

Many said they have prepared for natural disasters, terrorism and pandemics, but few are prepared for climate change--only 12 percent of chief executives said they have any concerns with the issue. Yet, climate change affecting available water supplies could have a devastating impact on their businesses, Marsh said.

Given the amount of media coverage on this issue, Andrew Winston, founder of Winston Eco-Strategies and co-author of the book "Green to Gold," one of the members of the Center of Risk, said he found the findings surprising. But he was even more surprised that few executives expect losses to occur. The survey found only 65 percent of executives believe a natural disaster is likely to occur, he noted.

"Companies that manage risks well and identify them, and move on them, will have a competitive advantage and take a lead in their industry," he said.

Howard Kunreuther, co-director of the Risk Management and Decision Center, Wharton School, University of Pennsylvania, noted that a combination of loss issues, pandemic, housing market collapse and global climate change underscores the interdependence of events in the economy. A water shortage impacting one company's manufacturing can cause a ripple effect impacting other companies.

On the water issue, only 17 percent of executives surveyed said their company has taken steps to prepare for reduced access to water. Companies surveyed viewed water problems as a risk that is not relevant to their operation--something the members of the Center say is unwise.

"I find this to be an alarming statistical result from the study," said Harvey Pitt, chief executive officer of the consulting firm Kalorama Partners and former chairman of the Securities and Exchange Commission. "Various risks may not apply to particular companies, but you just can't sit there and sort of assume they don't apply," he said. "What you can't do is respond based on your sense of things and feelings about things. That is not good corporate governance."

Details of the survey and more information about the Center for Risk Insights are available at www.risksmarts.com.