The Cohen Group: News: Op-Eds: New Challenges in Assessing Risk


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October 30, 2001, Tuesday, Third Edition

New Challenges in Assessing Risk
By William S. Cohen and Doron Ezickson

Business is not the same anymore. The events of Sept. 11 altered both the domestic and international economic landscape. This is a time for the American business community to rise to the challenge of meeting the new requirements the country faces. While the business community has been appropriately preoccupied with the immediate challenges of ensuring the safety of employees, evaluating short-term economic prospects, and enhancing screening procedures for incoming mail, executives also must design and implement a systematic and ongoing risk management strategy.

Assessing risk is fundamental to business planning at every level of commerce. But these assessments must now take into account terrorism-related threats that are broader and deeper than most businesses had considered in the past. Defining this threat must not be confined to even our most recent past experiences. The enemy thinks several steps ahead; so must we.

The threats may seem overwhelming, but the methodology for assessing and addressing the cultural differences, and foreign legal constraints.

The approach requires coordinating and prioritizing objectives between, among, and across various components of business: financial, human resources, technology, operations, and legal concerns.

Every business can start with several straightforward steps:

Reconsider the security of your business systems. Companies rely too frequently on relatively insecure data and telecommunications systems. The past outsourcing of technology development, while highly efficient, also leaves businesses highly vulnerable to infiltration and sabotage.

Audit your business partnerships and investor and customer relationships. Longstanding common sense applies - you should know those with whom you are doing business, and if you do not know them well enough, learn more before you go forward.

Know your personnel. New review procedures for existing employees should be implemented while honoring varied state and federal legal requirements. Screening of prospective employees must be enhanced. Develop clear security procedures and consequences for violations. Be attentive to the needs of military reserve personnel as call-ups continue.

Analyze your operations and identify a secure distribution network. Traditional assumptions regarding the time and cost of physical delivery of goods must be rethought. The efficiency of scale and centralization of manufacturing and distribution operations may prove inadequate in the new environment.

Review your contracts. The risk of nonperformance must be revalued and perhaps renegotiated. Rights of inspection and audit should be strengthened. Disclosures and warranties should be enhanced.

Evaluate your risk coverage. The cost and sufficiency of insurance must be constantly reevaluated. So too the financial condition of your insurer and reinsurer.

Recognize the value of intellectual property resources. Do not overlook the opportunity for new markets and applications for your existing products or intellectual property.

Proactively engage your government representatives. They share your challenges. If your interest is not related to security, reevaluate timetables for regulatory action, but demand that your business be attended to.

One way to help win the war on terrorism is to ensure that our economic foundations remain strong. To ensure that, we must look at our business practices in new ways and be prepared to make changes and sacrifices to prevail in these perilous times.

Former Secretary of Defense William S. Cohen is chairman and CEO of The Cohen Group, and Doron Ezickson is a managing partner at the Boston office of McDermott, Will, & Emery.;

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