In case of emergency-who knows? Also:
McMahon steps down at Enron, and SEC staffs up its corporation
finance division. Stephen Taub, CFO.com
Published
on April 22, 2002
Is your company prepared for a disruption to its major source
of earnings? If not, you're not alone.More than 50 percent of
finance executives say their companies are not well prepared
for an interruption to their businesses. And around 25 percent
concede their contingency plans are not adequate.
These are some of the findings of a poll of 200 chief financial
officers, treasurers, and risk managers conducted by property-and-casualty
insurer FM Global, the National Association of Corporate Treasurers,
and management-consulting firm Sherbrooke Partners. More than
75 percent of the respondents indicated that a major disruption
would have a dramatic impact on their companies' earnings-or
threaten their business continuity.
According to the study, respondents are most worried about property-related
hazards-things like natural disasters, fires/explosions, terrorism/sabotage/theft,
mechanical/electrical breakdowns, and service disruption. They're
not as concerned about casualty-related risks (such as product
tampering and political risk).
The study also reveals a fairly sizable disconnect between finance
managers and their superiors in assessing the potential damage
stemming from a business interruption. More than one-third of
the respondents, for instance, believe their companies' senior
management team lacks a complete understanding of what would
happen to their companies' earnings and shareholder value if
an interruption occurred. That group also said their bosses
don't even know what would be covered by insurance in case of
a business interruption.
The survey also shows a substantial difference in what risk
managers and finance executives think about their companies'
contingency plans. "CFOs and treasurers say they are less
confident in their company's contingency planning efforts and
consistently understated the scope of such planning compared
with what their risk management counterparts state," note
the study's authors. "The results also indicated significant
challenges have yet to be addressed, including scenario planning
and identifying production bottlenecks, even though contingency
planning is a core process now instituted across most of the
participants' businesses."
Smaller companies are more prone to buy as much as insurance
as possible to fund a potential major disruption than bigger
companies are, according to the survey. For example, half of
the respondents from companies with less than $1 billion in
revenues said they have "fully transferred" to others
the overall risk associated with their top earnings driver.
In contrast only one in four of the respondents from companies
with more than $1 billion in sales cited full risk transfer.
The remaining quarter of the survey's participants said their
companies have chosen to retain some risk on their balance sheets.
In addition, more than 80 percent of respondents consider terrorists
attacks to be mostly an insurance event. "The results of
this study indicate there are real, ongoing property hazards
that affect a company's top earnings drivers," says Ruud
Bosman, executive vice president of staff operations and planning
at FM Global. "In particular, the potential impact property-related
hazards can have has become more prominent as traditional insurance
markets become less willing to indemnify all the associated
risks after September 11."
Enron's McMahon Resigns
Less than four months on the job, Jeffrey McMahon has resigned
as president and chief operating officer of Enron Corp., effective
June 1.
McMahon, who two years ago raised questions about the partnerships
that ultimately led to the energy company's demise, was working
closely with interim chief executive officer Stephen Cooper
on a plan to reorganize the company as an asset-backed energy
concern focused on pipelines and power.
"I strongly believe that the best course for the Enron
estate, its creditors, and its employees is to use our core
pipeline and electricity assets to create a new company apart
from the litigation and diversions of bankruptcy," said
McMahon in a statement. "For that effort to have every
chance of success, it became clear to me that outside leadership
is required."
Cooper, a restructuring specialist who was brought in to save
the company, said in a statement that McMahon's position will
not be filled until Enron gets the rollout of the new company.
"Regrettably, I support Jeff's decision," said Cooper.
"Last fall, during tremendous turmoil within the organization,
Jeff stepped up as a true leader."
As you recall, McMahon twice testified before Congress that,
as Enron's treasurer, he raised concerns about partnerships
involving former CFO Andrew Fastow. Specifically, McMahon claims
he complained about the off-balance-sheet transactions to then-chief
operating officer Jeff Skilling. "I find myself negotiating
with Andy on Enron matters and am pressured to do a deal that
I do not believe is in the best interests of the shareholders,"
McMahon reportedly wrote in a note to himself after meeting
with Skilling.
Skilling, though, told congressional investigators that during
his meeting with McMahon, the Enron treasurer mostly expressed
concern about how the off-balance-sheet deals would affect his
compensation.
Several days after the meeting with Skilling, McMahon was promoted
to president and chief operating officer of Enron Net Works.
In that position, he no longer had to communicate with Fastow.
In October, McMahon was named CFO of Enron as part of a reorganization
of its executive ranks, and in January he was named president
and chief operating officer. He joined Enron in 1994 and spent
three years as CFO of the company's European operations.
McMahon began his finance career with Arthur Andersen in Houston.
He then served as CFO of MG Natural Gas Corp. from 1989 to 1994.
Dunn Deal: SEC Names New Corporation Finance Member
The Securities and Exchange Commission has named Martin Dunn
deputy director of the division of corporation finance.
"Marty is well versed in corporation finance issues and
will play a crucial role as the commission looks to improve
the financial disclosure system and streamline the capital-raising
process," said SEC chairman Harvey Pitt.
As deputy director, Dunn will assist division director Alan
Beller in implementing the commission's modernization of financial
disclosure and disclosure review systems and will play a key
role in the management of the division of corporation finance.
"Marty has broad experience in the division and a tremendous
depth of knowledge of the securities industry," said Beller
in a statement. "He has a long record of accomplishment
with the Commission, and many inside and outside the agency
seek his advice. With his versatility, enthusiasm and dedication
to the agency and the investing public, I know he will continue
to make remarkable contributions in this position."
Dunn, 38, joined the division of corporation finance as an attorney
in 1988. He has served as special counsel, deputy chief counsel,
chief counsel, associate director (disclosure operations), and,
most recently, associate director (legal).
Andersen's Latest Defections
KPMG has picked up two more of Arthur Andersen's clients.
Management at Security Capital Group Inc., which is merging
with GE Capital Corp., said it hired KPMG LLP as its independent
public accountants. The real estate company's management said
it made the switch in anticipation of the closing of the transaction.
In addition, AFC Enterprises Inc. named KPMG to replace Andersen,
which had served as AFC's accountant since 1992. Last year,
the restaurant franchiser and operator paid Andersen $314,900
for audit services, $343,171 for tax consulting services, and
$729,000 for services related to the company's initial public
offering.
Elsewhere, Mediacom Communications Corp. said it hired PricewaterhouseCoopers
to replace Andersen. Andersen had served as Mediacom's independent
auditor since the cable television company began operations
in 1996.
Angelica Corp., which provides textile rental and laundry services
to health-care, hospitality, and other service industries, hired
Deloitte & Touche as its external auditor to replace Andersen.
Management at Angelica said the change was made solely due to
concerns about Andersen's future viability in the wake of its
recent federal indictment. Andersen had been Angelica's independent
accountant since 1954.
In 2001, Angelica paid Andersen $166,500 in audit fees and $45,475
for other services, including benefit-plan audits, tax assistance,
and other operational consulting services.
|
