Hydro One Essay
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 …show more content…
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