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

T

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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