Doing business inherently involves taking risks. By taking balanced risks, we strive to be a sustainable company. Risk management is an essential element of our corporate governance and strategy development.
We foster a high awareness of business risks and internal control, geared to preserving our risk appetite and providing transparency in our operations. The Executive Committee is responsible for managing the risks associated with our activities and, in turn, for the establishment and adequate functioning of appropriate risk management and control systems (see Statement of the Board of Management in the Our leadership section).
AkzoNobel risk management framework
Through our risk management framework, we seek to provide reasonable assurance that our business objectives can be achieved and our obligations to customers, shareholders, employees and society can be met. Our risk management framework is in line with the Enterprise Risk Management – Integrated Framework of COSO and the Dutch Corporate Governance Code. The Executive Committee reviews our risk management and control systems and our major business risks, which are subsequently reviewed by the Supervisory Board.
Clarity on risk appetite and boundaries that determine the freedom of action or choice in terms of risk taking and risk acceptance is provided to all managers. Risk boundaries are set by our strategy, our Company Statement, Code of Conduct, company values, authority schedules, policies and corporate directives. Our risk appetite differs by objective area and type of risk:
- Strategic: In pursuing our strategic ambitions, we are prepared to take considerable risk related to achieving our performance, innovation and sustainability objectives. Returns on investment in the development of innovative products and sustainable solutions are never certain. Yet considerable funds and efforts are spent on research, development and innovation, even in less certain economic circumstances
- Operational: With respect to operational risks, we seek to minimize the downside risk from the impact of unforeseen operational failures within our businesses
- Financial: With respect to financial risks, we have a prudent financing strategy and a strict cash management policy and are committed to maintaining strong investment grade credit ratings. Our financial risk management and risk appetite are explained in more detail in Note 23 of the Financial statements
- Compliance: We do not permit our employees to take any compliance risk and have a zero tolerance policy in relation to breaches of our Code of Conduct. See the Governance and compliance section for more details
Risk management in 2013
Enterprise Risk Management is a bottom-up process which provides full coverage of the organization and ensures that we focus on what we consider to be the areas of major risk exposure. The scoping of our 2013 risk management activities was performed by the Executive Committee, business unit Managing Directors and Corporate Directors, in association with the risk management function. Besides the focus on coverage of our organization, emphasis is put on organizational changes, key strategic projects and high growth regions.
In 2013, we facilitated 93 Enterprise Risk Management workshops. In these workshops, more than 2,000 unique risk scenarios were identified and prioritized by responsible management teams and functional experts. In addition, in selected areas with low risk tolerance, dedicated risk assessments were performed to preserve our risk appetite. All major risks were responded to by the unit that identified them. The outcome of all risk assessments was reported to the next higher management level. Risk profiles and trends were shared by managers across the company. In the bottom-up consolidation process, the risks were taken to the next management level, where they were re-assessed, either because of the materiality of the risk exposure and/or because of the accumulated effect.
Risks we have seen materializing to a full or lesser extent in 2013 were in the area of extreme weather events impacting our operations (e.g. floods, storms, fires), soft trading conditions in general, adverse energy costs primarily in Europe, several HSE incidents, product claims and significant negative exchange rate fluctuations with a harmful impact on our financial results.