The Management Board and its Risk Manager
Companies have always concerned themselves with avoiding risks to the company as a going concern. The need to systematically identify, evaluate and manage risks has increased in recent years. One reason for this is that the level of risk in many areas has vastly increased. This is reflected in the speed of change of technological processes, the dependency on few customers, or the emergence of entirely new risk categories (for example, potential new competitors from abroad as a result of an increasingly globalised world). Further to this, as a result of the Control and Transparency Act (Kontroll- und Transparenzgesetz - KonTraG) enacted in 1998 and its “radiating effect” on small and medium-sized companies, it may be assumed that the failure to implement a risk management system – also in corporations – can result in managing directors being held personally liable. Finally, as a result of Basel II and Basel III, both regular and savings banks are required to be more cautious when it comes to risk. The impact of risks that have occurred (for example, the loss of a major client or an unexpected increase in material costs) have become apparent in the annual accounts and the key financial figures derived from them (for example, equity capital quota or overall return). As these figures define the conditions for loans and interest in the typical company rating process, risks can have a considerable impact on company financing. For instance, a coincidental combination of several risks can quickly give rise to a situation in which the financing of a company is no longer secured because of an unsatisfactory rating. This can also happen despite a company demonstrating strong performance over the long-term. This issue is particularly likely to be present where companies have reduced risk capacity (especially capital), regardless of the existence of other factors that indicate excellent potential for success. On the whole, these recent developments call for thorough engagement with the issue of risk management. Guidelines must be put in place to appropriately tackle potential risks to the company as a going concern and, when it comes to major company decisions (for example, investments), expected profits must be weighed against related risks.
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