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Redefining risk in post 9-11 business world

And Parveen P. Gupta, the Frank L. Magee Distinguished Associate Professor of Accounting, is equipping students with the tools they need to assess and deal with the risks their systems, employees, and finances face.

"In today’s age, firms need a broader definition of risk, one that covers the entire business, not just financial exposure," Gupta says.

Firms need to be able to identify risk as anything that could possibly get in the way of achieving business objectives. Gupta has created a new course—"Corporate Governance and Business Risk Management"--to prepare his masters of accounting students to enter the fast-growing, lucrative niche of corporate governance and risk assurance consulting.

This field is so hot that Gupta recently discussed the course during a live interview on CNNfn.

"We broke the mold with this course," Gupta says. "There is no accounting in it per se, but students do take auditing course prior to taking this course."

In this innovative course, students dig into critical, but previously overlooked topics: the "best practices" in corporate governance, board evaluation, business risk assessment, crisis management, and how to effectively interview senior management and operating officers to collect relevant information.

They also work with more than a half dozen local firms--including Universal Industrial Gases, BEF Corporation, Synthetic Threads, Aledco Company, and Dynalene Inc.--to identify company business risks.

"Critical skills need to be in place in emerging corporate governance and risk management consultants if they are to be effective in helping create risk-intelligent organizations," Gupta says.

`Anatomy of Greed’

To map out company-specific risks and make related recommendations, the students first grasp the strategy and understand key profit drivers of each company by asking three basic questions: How is this company adding value? Is it able to retain some of the value that it is creating? Will this company continue to add value in the future?

Armed with this information, students map out the "value chain" of the enterprise and through a process of interviewing and surveys, then identify and evaluate business risks for "mission critical" activities within the value chain.

Before they head out into the field to consult with a real firm, student teams study a who’s who of corporate wrong-doers, including companies such as WorldCom, Global Crossings, Enron, and Adelphia Communications. The project, appropriately titled, "Anatomy of Greed," teaches students how to identify red flags that can cause a company’s corporate governance structure to break down.

"These in-depth company analyses tend to make students realize that the fundamental tenets of trust, faith, confidence, and morality are the critical ingredients for the long-term survival of corporate America," Gupta says.

Helping companies understand the reality of the risks they face is a critical first step in this process. "It's human nature: Companies think control breakdowns and disasters only happen to others," Gupta says. But the events of Sept. 11 have proved that crisis--or risk management gone bad--can develop in an instant, and to anyone.

"Many companies, including American Express, lost business after 9-11 because of the effects on their processing centers," Gupta says. And many brokerage firms that had no office space back-up plan "had to scramble for temporary space to get up and running in time for the markets scheduled to open the following week. And we’re not just talking about Fortune 500 companies. Every company needs to plan and think this way. To prevent these crises, companies are employing risk management consultants who can better plan for, manage, and control risk."

The feedback from Gupta's students is positive. "It was exciting to be given the opportunity to use class material to help a real, profit-making company," says Linda Murad, of Emerson, N.J.

After Gupta's course, some students may alter their career paths toward risk management. Others may choose to stay with accounting.

Regardless, they will be well prepared.

"Being able to speak intelligently with top-level executives about corporate governance (an issue at the front of their minds) has undoubtedly helped me in obtaining several job offers," says Steven P. Brundage, of Middletown, N.J.

--Andrew Stanten
amsr@lehigh.edu
with Elizabeth Shimer
elcs@lehigh.edu

Posted on Wednesday, January 29, 2003

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