Thursday, November 7, 2019

Enterprise Risk Management, Business Continuity

Risks planners
Dare not report
In executive BIA

THANKS ONCE AGAIN TO ADVISEN FPN, Enterprise Risk management professionals are alerted to several “awkward” risks.

Risks that corporate executives probably don’t want to consider.

ADVISEN FPN for November 6, 2019, listed the following items of interest:

    Warned of A Problem, Vale's CEO Lashed Out
    Another reminder from Delaware about the duty of oversight
    Pirates seize 4 aboard Greek-flagged ship off coast of Togo

 

Warned of a Problem

The article originally appeared in the Wall Street Journal; the information below is on the Morningstar.com website.1 Go to the web site to read the entire article.

    BELO HORIZONTE, Brazil -- Vale SA's top managers received an anonymous email warning about the state of the miner's dams two weeks before a deadly disaster, a note that prompted the chief executive to pursue the writer's identity and call the person a "cancer," a police document shows.

    Authorities said they are focusing on then-CEO Fabio Schvartsman's response as they investigate whether a culture of retaliation at the company contributed to the Jan. 25. mine-dam collapse in Brumadinho that killed 270 people, the world's deadliest mining disaster of its kind in more than 50 years.

Schvartsman came to Vale SA having been named by Fastmarkets RISI 2 as Latin American CEO of the Year. The Financial Times 3 headlines Vale turns to experienced Brazilian manager in Schvartsman

Yet, despite the kudos, Schvartsman dismissed a warning that a mine dam was in danger of collapse and, rather than investigating, he allegedly castigated the person who sent the warning and denigrated the person as a “cancer.”

How could a risk management practitioner predict such behavior?

    As an enterprise risk management practitioner I listed a number of threats to an organization; the information was disregarded by an IT manager, the threats occurred, the company was effectively out of business for more than a week and the practitioner was sent packing. (Kill the messenger philosophy.) Lesson learned (among many): IT never should control enterprise risk management planning.

The article suggests that Schvartsman was not the only Vale SA manager who knew about contents of an email warning about a dam failure. According to the article,

    The Jan. 9 email, which was sent to Mr. Schvartsman, current Chief Executive Eduardo Bartolomeo, Chief Financial Officer Luciano Siani Pires and other executives, said the company's mine-waste dams were "at their limit," according to a 15-page summary of Mr. Schvartsman's recent interrogation by police and prosecutors that was reviewed by The Wall Street Journal.

Did Schvartsman’s reputation silence the others who received the email? The CFO at last should have acted to spare the company criminal charges and lawsuits from victims and survivors. (As a practitioner I always suggested that the CFO be the plan sponsor. The CFO’s sole function is to avoid hits to the organization ‘s bottom line.)

 

Another reminder

The JD Supra site4 reports that

    Following this summer’s much publicized decision by the Delaware Supreme Court in the Marchand v. Barnhill (Blue Bell Creameries) case, the Delaware Court of Chancery’s holding in In re Clovis Oncology, Inc. Derivative Litigation earlier this month serves as a second recent reminder to directors of their duty of oversight obligations.

    This time, the case involved the second prong of Caremark, and the court found another well-pleaded Caremark claim where plaintiffs alleged that the board of directors of Clovis Oncology, a publicly traded biopharmaceutical firm focused on acquiring, developing and commercializing cancer treatments, “ignored multiple warning signs” that management was inaccurately reporting the efficacy of a trial drug in violation of internal trial protocols and related Food and Drug Administration (“FDA”) regulations with respect to a product that was “intrinsically critical to the [C]ompany’s business operation.

Once again, there is a “smoking gun” that management allegedly elected to ignore.

Enterprise risk management apparently was absent at two organizations:

    Caremark and
    Clovis Oncology

Someone at Clovis allegedly covered up actual findings to get better results to post to the FDA and to share with a potential customer, Caremark.

Caremark’s executives may have failed to perform “due diligence” when accepting information from Clovis.

Wikipedia4 describes Caremark as

    (O)ne of the nation's leading pharmacy benefit management (PBM) companies, provides comprehensive prescription benefit management services to over 2,000 health plans, including corporations, managed care organizations, insurance companies, unions and government entities. With net revenue of approximately $37 billion (including approximately $5.8 billion of retail copayments) in 2006, they are also one of the largest PBMs. Caremark operates a national retail pharmacy network with over 60,000 participating pharmacies, as well as 56 retail specialty pharmacy stores, 20 specialty mail order pharmacies and 9 mail service pharmacies located in 26 states and the District of Columbia.

Enterprise risk management practitioners are left wondering what they could do to prevent such disasters. There apparently were documents available to shed light on the risks and cover-ups, but the risks were known only to very senior executives; people who review sponsor plans.

Would having a lawyer — captive or otherwise — involved with risk management have prevented either event?

Is “management misbehavior” a risk a risk management practitioner dare list if he or she wants the project to progress?

 

Pirates seize 4

Finally, an “almost” no brainer.

Having worked for ZIM, an Israeli international cargo shipping company in its U.S. headquarters in Norfolk VA, I know a little about ocean cargo ships.

ZIM crews, unlike many carriers, are armed; all Israeli men spend time in the Israeli Defense Forces (IDF) and they are trained in the use of sundry weapons.

However, most trans-ocean shipping companies elect not to arm their crews for reason of their own.

The Guardian5 reported that

    Cargo ships don't carry weapons because it is feared this would increase the likelihood of crew members getting killed or injured.

    Anti-piracy tactics tend to focus on preventing pirates boarding in the first place. In the Alabama's case it fought off the pirates for up to five hours.

    "We have ways to push back, but we do not carry arms," said the Maersk chief executive, John Reinhart. In the Alabama's case those ways are thought to involve using fire hoses against the pirates. They may also have made the ship difficult to board by speeding to create a large wash.

The ICS-Shipping site6 offers a PDF file listing gun laws for ports of call around the world. Many nations prohibit ships from calling when it is known there are weapons on board.

Forewarned, etc.

There are many websites that warn about pirates activity around the globe. Several areas are pirate playgrounds where shipping companies know there is a better than average change of an encounter with pirates.

Google map at https://tinyurl.com/y6ucta7t

Given that, there appear to be ways to thwart pirates short of using ZIM’s effective methods.

Use the sites below to identify areas where pirates recently have been active.

ICC: https://www.icc-ccs.org/piracy-reporting-centre/live-piracy-map

How Stuff Works: https://people.howstuffworks.com/pirate6.htm

MARAD: https://www.maritime.dot.gov/ports/office-security/office-maritime-security

World Shipping Council: http://www.worldshipping.org/industry-issues/security/piracy

Just common (?) sense

The How Stuff Works site (ibid.) offers what this scrivener considers “common sense” suggestions.

In the end, it is the obligation of the world’s navies to protect shipping in their waters. When the navy of the country being transited fails to provide protection, the navies of the countries whose flag the vessel flies need to escort vessels through the danger zone.

There already is some international cooperation in this area, but since piracy continues, more needs to be done.



Sources

1. Morningstar.com: https://tinyurl.com/y5mwso24

2. Fastmarkets RSI: https://tinyurl.com/yxz6x3rv

3. Financial Times: https://tinyurl.com/y5e4w9d8

4. Caremark: https://en.wikipedia.org/wiki/CVS_Caremark

5. The Guardian: https://tinyurl.com/y4pb73nc

6. ICS-Shipping: https://tinyurl.com/y5tazf8x

PLAGIARISM is the act of appropriating the literary composition of another, or parts or passages of his writings, or the ideas or language of the same, and passing them off as the product of one’s own mind.

Truth is an absolute defense to defamation. Defamation is a false statement of fact. If the statement was accurate, then by definition it wasn’t defamatory.

Web sites (URLs) beginning https://tinyurl.com/ are generated by the free Tiny URL utility and reduce lengthy URLs to manageable size.

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