Hydro One Essay

3242 Words Aug 10th, 2016 13 Pages
The Rise and Evolution of the Chief Risk Officer:
Enterprise Risk Management at Hydro One by Tom Aabo, Aarhus School of Business, John R. S. Fraser, Hydro One, Inc., and Betty J. Simkins, Oklahoma State University


he Chinese symbols for risk shown above capture a key aspect of enterprise risk management. The first symbol represents “danger” and the second “opportunity.” Taken together, they suggest that risk is a strategic combination of vulnerability and opportunity. Viewed in this light, enterprise risk management represents a tool for managing risk in a way that enables the corporation to take advantage of valueenhancing opportunities. A missed strategic opportunity can result in a greater loss of (potential) value than
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What’s more, security rating agencies such as Moody’s and Standard & Poor’s have recently begun to take account of ERM systems in their ratings methodology. As reported in a recent study by Moody’s,

1. We view the terms “integrated,” “strategic,” and “enterprise-wide” as interchangeable in what we call enterprise risk management.
2. In the hypothetical Modigliani and Miller world of corporate finance, risk management does not add value. However, in the non-frictionless environment of the real world, risk management by the firm can create value in one or more of the following ways that investors cannot duplicate for themselves: (1) facilitate the risk management efforts of the firm’s equity holders; (2) decrease financial distress costs; (3) lower the risk faced by important non-diversified investors (such as managers and employees); (4) reduce taxes;
(5) reduce the firm’s capital costs through better performance evaluation and reduced monitoring costs; and

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