Lehman Collapse: Risk management comes into sharp focus

The global shockwaves following Lehman Brothers��� collapse have woken India Inc to the importance of sound risk management system to tide over future crises. Despite the fact the India was less affected by the meltdown, companies here are pulling up their socks as the slump has demonstrated that risks are entwined and cut across boundaries.

In some cases, MDs have been given the extra responsibility of overseeing risk management. Traditionally, the enterprise risk management department covered all units and sections and in turn reported to the CFO. Some establishments are also streamlining their organisational structure, integrating the insurance and risk management functions as is done globally. Currently, the two functions are independent of each other in India.

Even private equity funds are taking no chances. Most big players have sought international risk advisory firms like Marsh, to step up the internal control process of their portfolio companies. ���The global credit crisis has driven home the point that although US was the epicentre, its effect has been felt elsewhere too, in today���s inter-connected world. Risk management must factor inter-linkages and remote possibilities,��� said Marsh India head Sanjay Kedia. ���Low-probability and high-severity catastrophes like the recent financial turmoil or the Mumbai terror attacks do happen,��� he said.

The global churning has also forced firms���from IT to textiles���to seek credit insurance, which protects receivables from debtors over protracted default or if the buyer becomes insolvent. An insurance executive said, ���Some export-oriented companies assumed that their western clients were safe and sound. This behaviour has changed post the Lehman episode and they are now seeking cover.��� As a result, he added, premium rates have hardened even as insurers��� capacity reduced.



Companies should move beyond ���it cannot happen to us��� or ���won���t happen during my (read: CEO���s) term��� approach, according to a World Economic Report on Global Risks 2009. ���Good risk practices work like glue. They hold together interests of all stakeholders,��� says an anaylst.