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COSO ERM Framework
Source: Committee of Sponsoring Organizations of the Treadway Commission www.coso.org. Used with permission.
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A COSO Implementation
Multinational Corporation ERM program:• 800 Business Risks. Consolidated into 20
categories:• 2100 Common Risks Group-wide
exposures.
Subcontractors
Technical
partners
Suppliers
Information
Organization
Human resources
Customers
Operational processes R&D Marketing & SalesManufacturing
CompetitorsExternal environment
Internal environment
Business partners
Delayed production
Dependence on specific business
partners
Failures of sales channel
strategies
Failures of sales promotion
Inadequate business partner handling
Insufficient manufacturing reforms
and IT innovations
Internal infrastructure and
organization operations
Falling market prices
Failures to respond to changing
customer needs
Increasing competition
due to competitors' products
Structural reform-related issues
Naturaldisasters
Laws and regulations
Country-specific risks
Lack of differential technology
Delayedtechnologicaldevelopment
Delayed collaboration due to insufficient linkage between divisions
Cost increases (increasing inventory, soaring material costs, declining yield)
PL and quality issues
Staff allocation and development
Results of Business Risk Consolidation
- Business risks in the external environment, operational processes, and internal environment -
Business StructureBusiness domain Business Domain Companies and Group Companies
Global and
Group Head Office
Global and
Group Head Office
Home appliances, household equipment, healthcare systemsHome appliances, household equipment, healthcare systems
LightingLighting
Environmental systemsEnvironmental systems
Home Appliances
Home Appliances
Matsushita Home Appliances Company, Matsushita Refrigeration Company*Healthcare Business CompanyLighting CompanyMatsushita Ecology Systems Co., Ltd.*
Matsushita Home Appliances Company, Matsushita Refrigeration Company*Healthcare Business CompanyLighting CompanyMatsushita Ecology Systems Co., Ltd.*
AVCAVC
Fixed-line communicationsFixed-line communications
Mobile communicationsMobile communications
Automotive electronicsAutomotive electronics
SystemsSystems
AVC Networks
AVC Networks
Panasonic AVC Networks Company
Panasonic Communications Co., Ltd.*
Panasonic Mobile Communications Co., Ltd.*
Panasonic Automotive Systems Company
Panasonic System Solutions Company
Panasonic Shikoku Electronics Co., Ltd.*
Panasonic AVC Networks Company
Panasonic Communications Co., Ltd.*
Panasonic Mobile Communications Co., Ltd.*
Panasonic Automotive Systems Company
Panasonic System Solutions Company
Panasonic Shikoku Electronics Co., Ltd.*
MotorsMotors
Electronic componentsElectronic components
SemiconductorsSemiconductors
Display devicesDisplay devices
BatteriesBatteriesComponents and DevicesComponents and Devices
Semiconductor Company
Matsushita Battery Industrial Co., Ltd.*
Panasonic Electronic Devices Co., Ltd.*
Motor Company
Others
Semiconductor Company
Matsushita Battery Industrial Co., Ltd.*
Panasonic Electronic Devices Co., Ltd.*
Motor Company
Others
FA, Corporate eNet Business DivisionFA, Corporate eNet Business DivisionSolutionsSolutions Panasonic Factory Solutions Co., Ltd.*, and othersPanasonic Factory Solutions Co., Ltd.*, and others
Victor Company of Japan, Ltd.*Victor Company of Japan, Ltd.*
Segment
JVCJVC
Matsushita Electric Works, Ltd.*, PanaHome Corporation*Matsushita Electric Works, Ltd.*, PanaHome Corporation*
Head Office
CISC
Panasonic Design
Company
R&D divisions
Sales division
Overseas divisions
MEW and PanaHomeMEW and PanaHome
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Secretariat
Results of Group-wide risk
assessment
Establishing and improving Group-wide RM systemInstructing risk assessment
After the Committee's establishment
After the Committee's establishment
Corporate FunctionalDivision A
Corporate FunctionalDivision A
Corporate FunctionalDivision C
Corporate FunctionalDivision C
Support
Support
Corporate FunctionalDivision B
Corporate FunctionalDivision B
G&G RM Committee G&G RM
Committee
<Roles of the Committee>
[1] Establishing and improving Group-wide RM system
[2] Conducting Group-wide risk assessment
[3] Reporting to the President, and Board of Corporate Auditors
[4] Studying possible measures to prepare for major risks; suggesting such measures to President and Corporate Functional Divisions
[5] Improving Group-wide support systems against emergencies
CommitteeCommittee
CommitteeCommittee
Domains
Subsidiaries
Corporate Regional Management
Divisions /Regional HQs
Collecting risk information from across the Group
Group-wide Risk Management System for General Control
(2) Establish a G&G Risk Management Committee to address the current problems
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3. Operations
2. Politics, economy, and society
1. Disasters and accidents
(3) Information
Earthquakes, typhoons, tsunamis, floods, and other natural disasters
General Affairs Group, Overseas Security management Office
Fires, explosions, airplane crashes, terrorist attacks, and other major destructive or violent events
General Affairs Group, Corporate Personnel Group, Overseas Security Management Office
Wars, civil wars, conflicts, etc. General Affairs Group, Overseas Security Management Office
Corporate threats, abduction, and violent civil unrest
General Affairs Group, Overseas Security Management Office
PL and recall issues, other quality problems Corporate Quality Administration Division
Failure in complaint-handling Corporate CS Division
Intellectual property right infringements Corporate Intellectual Property Division
(2) Sales and procurement Violation of antitrust (competition laws) Corporate Legal Affairs Division
Bribery Corporate Legal Affairs Division
Violation of Subcontractors Act Corporate Procurement Division
Soaring raw material prices and unavailability Corporate Procurement Division
Trade secret leakage Corporate Information Security Division
Private data leakage and violation of privacy Corporate Information Security Division
Information security incidents related to products and services
Corporate Information Security Division
Insider trading General Affairs Group
Shutdown or malfunction of information systems and communication networks
General Affairs Group, Corporate Information Security Division
Unauthorized use of information systems General Affairs Group, Corporate Information Security Division
Inadequate security measures related to information systems
General Affairs Group, Corporate Information Security Division
(4) Information systems
Environmental pollution Corporate Environmental Affairs Group
Waste treatment Corporate Environmental Affairs Group
Environmental regulations Corporate Environmental Affairs Group
(5) Environment
Violation of security export control Corporate Legal Affairs Division
Trade issues Corporate Legal Affairs Division
(6) International relations
(7) Finance Bad loans and business partner bankruptcy Corporate Accounting Group
Tax and accounting system changes Corporate Accounting Group
Exchange rate fluctuations Corporate Finance & IR Group
Interest fluctuations Corporate Finance & IR Group
Stock price fluctuations Corporate Finance & IR Group
Impairment of long-term assets and deferred tax assets
Corporate Accounting Group
(8) Labor issues Human rights issues, including sexual harassment
Industrial Relations Group, Corporate Personnel Group, Overseas Security Management Office
Employment Corporate Personnel Group, Industrial Relations Group
Industrial accidents Industrial Relations Group
Health issues such as infectious diseases Industrial Relations Group, Overseas Security Management Office
(1) Quality, CS, and intellectual property
Clarify Sections Responsible for Each Risk
2009 CPI Rank: 111 of 180 countries2009 Score: 2.8Previous ranking: 115
Compare to:United States rank and score: 19th, 7.5New Zealand rank and score: 1st, 9.4
A history of vast corruption…In 2008, the United Nations published the Egypt Human Development Report.
The results called on the civil society to act as a “third pillar” in developing the country as they have been failed by both public and private administrations.
As a result of the vast corruption, Egypt’s development has remained stagnant while the disparity between the wealthy and poor has increased.
The World Bank says that poverty in the 2004-2005 years is equivalent to that of 1995-1996.
CPI dropped from 70th to 105th from 2006 to 2007.
New York Times: 45 percent of Egypt’s population survives on < $2 per day.
The Corruption of Bread
Bread, sugar and tea have been subsidized since WWII.
Provisions are the most corrupt sector in Egypt.
$2.74 billion spent on subsidies -more than on healthcare, education
Creates significant black market value.
As a result…
Government sells flour $1.50 per sack for a profit of $10 per sack.
An inspector must certify that the baker has used flour properly for 3 months in order for baker to receive $1/sack refund.
Inspector is bribed by baker with black market sales and inflated prices.
In a study by the Al Ahram Center for Strategic Studies, 28.5 percent of respondents attribute inflation and increased prices caused by corruption.
88 percent blame it on low wages.
After 20 years, the bakery inspector makes $55 per month to feed a family of ten.
"The state-businessmen relations in Egypt are an
illegal and unconstitutional marriage.”
Abdel Khaleq Farouk, economist
L.A. Times, March 1, 2009
Business Anti-Corruption Snapshot
Executing a commercial contract requires and average of 42 procedures and takes 1,010 days.
It takes 6 years to settle business dispute in court. (Heritage Foundation, 2009)
Corrupt police officials will buy shops and properties off of detainees.
7.3 percent of annual sales spent on bribing officials.
No tenure for low level judiciary. Wages low and bonuses contingent on higher levels.
Environmental ministry is lowest paid and has most high-level scandals in 5 years, with 10.
Recovered bodies are put in unlabeled garbage bags. Only riot police are sent to assist concerned family members.
An investigation finds that the ferry owner, Mamdou Ismail,a parliament employees is related to the owner of Egypt’s safety inspection company.
The 600 page report indicates incompetence by authorities and neglect by the ferry owner. He flees to London and is acquitted.
The incident symbolizes Egypt’s corruption.
A Corrupt Education..
“What remains is a decomposed corpse that yields nothing worthy of meaning and to the stench of which we have become thoroughly desensitized.”
Al Ahram, June 25, 2008 editorial
A Cycle of Poor Regulation:
-June 2008: Daughter of Egyptian parliament member accused of selling national exams that are essential to determine college enrollment.
Lack of proper oversight leads to an exam riddled with errors, impossibly difficult questions.
Suicide is common for students that fail the exams. Students that pass can incur debt for private tutoring they need because of poor schools. Overcharging tutors are the same professors.
Babies Killed in Power Outage
July 2008: 4 babies die when a hospital loses power for 3 hours and the generator fails.
Outrage spreads in Egypt when a mobile phone captures doctors trying to resuscitate 5 infants at a hospital without power.
Healthcare and education are free in Egypt, however, public spending has been cut. In 2001, national spending was 2.4 percent, in 2006, 1.3 percent. Egypt has seen 7 percent economic growth, yet most goes to wealthy.
Doctors are paid $47 per month.
Transparency on the horizon.. Transparency is improving with rise in Internet popularity.
Egypt uses 2nd most Internet in Africa (8.6 million users).
40 percent of population between ages 15 and 40.
USAID-funded Nazaha website to raise awareness by reporting corruption from 23 sources.
Egypt signed UN Convention against corruption.
51% believe democracy will help.
Established 4 councils: Committee of Integrity and Transparency, Administrative Authority Council, Central Auditing Agency, Public Funds Prosecution, Administrative Prosecution Authority.
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