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A new study of UK investment analysts and managers finds that three quarters of them, on average, would upgrade their rating of a company if it demonstrates strong risk management practices. and would downgrade a company’s rating if there was insufficient information about its risk management policies.
The findings of the 2008 UK Business Risks & Ratings Study, commissioned by FM Global, one of the world’s largest business property insurers, are based on the responses of 100 investment analysts. The study was conducted to determine how the risk management efforts of publicly traded companies influence the investment community’s analysis of those firms.
The study also revealed that most investment analysts (85%) monitor at least annually the risk management strategies of the companies they evaluate, and 60% believe that there is a direct correlation between a company’s share price and a firm’s track record of dealing with risk management crises.
“Risk management needs to become a board level issue given that most UK investment analysts monitor corporate risk management strategies and practices,” said Stefano Tranquillo, FM Global’s vice president of UK operations. “Companies would be well advised to ensure their risk management practices protect their operations and prevent loss, rather than trying to pick up the pieces and manage stakeholder concerns, should a damaging event occur.”
Almost all (97%) indicate companies should, at least annually, re-evaluate their risk management strategies, while 81% believe that it is “equally important” or “more important” for a company to communicate its risk management efforts than to provide information about other corporate strategies and initiatives.
“In reviewing the study findings, we also observed that most analysts believe a company that fails to effectively manage its risks will ultimately suffer financially,” added Tranquillo. “In today’s uncertain economy, it is even more prudent for companies to think twice before cutting back in the area of risk management and ensure their stakeholders are confident in their firm’s ability to manage risk.”