Reflective Log on Tesco, Vw, Bhs and Uber

Candidate No. 293040

Case 1: BHS

As a risk manager, I would have recommended to senior management and board of directors to enhance the risk management system for more balanced executive and governance activities of the company. I would report on the risks associated with principal-principal problems (e.g. the sale-and-leaseback activity), highlighting the need to balance majority and minority shareholder interest for company’s ability to continue as a going concern. I would also inform executives of major risks behind mergers, acquisitions and sale of the company, especially when it is a £1 sale to someone with zero retail-running experience. Last I would emphasis importance of taking a stakeholder perspective, to consider also risks for the 11,000 employees.

The BHS case most importantly illustrates importance of good balance between shareholders. Strong family blockholder, especially combined with CEO duality problem, very possibly leads to over-concentration of power and results in exploited interests of not only minority shareholders but also stakeholders. Had I been an accountant or auditor in such organisations, I would attend to signs of principal-principal problems such as tunnelling, acknowledge the risk associated and implication for the company to continue as a going concern. For instance, non-strategic dividend payment under losses and non-strategic sale-and-leaseback company’s property is possibly a dangerous sign to company’s future. Furthermore, as an employee in such companies I would try harder to protect my own interest by either trying to express my opinion or consider working for other companies.

Case 2: Volkswagen

Had I been the risk manager at VW, I would have tried putting the risk management principles and objectives of VW as claimed by its RMS/ICS into better practice.

For risk identification and management, VW identified environmental risks and associated financial risk. I would have emphasised an overlooked but particularly important risk for the self-claimed, environmentally-friendly VW: reputation risks, in case of non-compliance with environmental regulation. I would have ensured ‘three lines of defense’ carried out as claimed by VW, with ‘timely notification of significant risk’ to management and internal auditing.

Risks associated with VW’s suboptimal corporate governance practices should have been picked up as well. For the board, since VW was found to have a 1) large and 2) busy board with 3) CEO duality and 4) insufficient board independence and diversity, I would have advised having 1) a smaller (e.g. 12-member) board, 2) board interlocking controlled for, 3) CEO-chairman duality avoided, with 4) directors of authentic independence (especially those in remuneration committee) and diversified experienced.