2nd Aug, 2007

ASX rewriting risk disclosure

The ASX is contemplating new rules which will require companies to disclose far more of their business risks than they currently do. Among the risks being looked at are: environmental and sustainability issues, compliance, strategy, ethics, reputation and brands, technology, product or service quality and workforce training and recruitment issues.

Now there is no question that disclosures of this kind will benefit existing and potential shareholders. Companies currently reveal relatively little of their business risks, except where required to by regulation, which is not demanding. But there is real doubt that companies are in a position deliver this kind of reporting, as in many areas most companies don’t have robust risk frameworks in place. The risk disciplines of business currently incorporate relatively little of the technical knowledge that has been developed in uncertainty analysis. The insurance sector is an exception, but its actuarial disciplines are relatively tightly focused, and don’t move out far into the wider business environment, as this initiative is proposing.

Moreover, it’s going to be extremely challenging to distinguish real from speculative risks, to determine their ordinal and cardinal rankings, and to establish rules which guide reporting. Competitive issues will loom large.

It can be confidently predicted, however, that regulations of this kind will generate a significant demand for technical services in risk evaluation across a wide range of business dimensions, and of a much higher order than is currently the case.

Report from The Age link here.

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