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FINANCE AND STRATEGY PRACTICE RISK INTEGRATION STRATEGY COUNCIL ™ Emerging Risk Update August 2009 FINANCE AND STRATEGY PRACTICE RISK INTEGRATION STRATEGY COUNCIL ™ Emerging Risk Update August 2009 © 2009 The Corporate Executive Board Company. All Rights Reserved.

FINANCE AND STRATEGY PRACTICE RISK INTEGRATION STRATEGY COUNCIL Emerging Risk Update – Summary Introduction: FINANCE AND STRATEGY PRACTICE RISK INTEGRATION STRATEGY COUNCIL Emerging Risk Update – Summary Introduction: The Risk Integration Strategy Council recently launched a Monthly Emerging Risk Survey. We are pleased to present the results of this survey in the second edition of the Emerging Risk Update. This initiative is an effort to leverage the power of our network to create a “risk sensing engine” capable of identifying risks emerging over the horizon. The Top 10 Risks for August 2009: 1. Continued Recessionary Pressure 2. Increased Competitive Pressure 3. Cost Reduction Pressures 4. Strategic Change Management 5. Political Trends 6. Liquidity Risk 7. Information Technology Risk 8. Third Party Solvency 9. Talent Risk 10. International Operations Request for Ongoing Participation: Please click here to participate in the September Emerging Risk Survey. This survey will take less than 3 minutes to complete. Survey Methodology and Overview of Presentation: In our survey, executives were asked to identify the top five risks and also provide an estimate of probability, impact and velocity for each of these risks. In the following pages, you will find a summary of the top ten risks within the content of likelihood (likelihood is defined as the combination of how frequently executives marked these risks as their top five risks and the probability score for these risks). You will also find details of the top ten risks including risk description, indicators and mitigation strategies adopted by members. © 2009 The Corporate Executive Board Company. All Rights Reserved. 1

FINANCE AND STRATEGY PRACTICE RISK INTEGRATION STRATEGY COUNCIL Top Ten Emerging Risks – Likelihood, FINANCE AND STRATEGY PRACTICE RISK INTEGRATION STRATEGY COUNCIL Top Ten Emerging Risks – Likelihood, Impact & Velocity High RISK VELOCITY Likelihood Very Rapid Impact of the risk would be evident in a month Rapid Impact of the risk would be evident in a quarter Slow Impact of the risk would be evident in a year n=27 Low Impact High Methodology The top 10 risks were identified based on how frequently executives marked these risks in their list of 5 top risks © 2009 The Corporate Executive Board Company. All Rights Reserved. 2

FINANCE AND STRATEGY PRACTICE RISK INTEGRATION STRATEGY COUNCIL Top Five Emerging Risks By Likelihood, FINANCE AND STRATEGY PRACTICE RISK INTEGRATION STRATEGY COUNCIL Top Five Emerging Risks By Likelihood, Impact and Velocity TOP 5 RISKS BY PROBABILITY TOP 5 RISKS BY IMPACT TOP 5 RISKS BY VELOCITY Political Trends Liquidity Risk Cost Reduction Pressure Strategic Change Management Third-Party Solvency Liquidity Risk Cost Reduction Pressure Information Technology Risk Political trends Continued Recessionary Pressure Political Trends International Operations Talent Risk Strategic Change Management Continued Recessionary Pressure Methodology The top five risks by probability, velocity and impact were identified from the list of top 10 risks by likelihood © 2009 The Corporate Executive Board Company. All Rights Reserved. 3

FINANCE AND STRATEGY PRACTICE RISK INTEGRATION STRATEGY COUNCIL Overview of Top 10 Emerging Risks FINANCE AND STRATEGY PRACTICE RISK INTEGRATION STRATEGY COUNCIL Overview of Top 10 Emerging Risks Overview Given the current economic environment, Continued Recessionary Pressures and Cost Reduction Pressures are intuitive risks. However, members have indicated that Increased Competition, Strategic Change Management, Information Technology and Talent are also high risk areas for their companies. These risks are forcing companies to challenge fundamental assumptions and deal with long-term issues such as developing a deeper understanding of the competition, engaging employees and focusing on product innovation. 1. Continued Recessionary Pressure 2. Increased Competitive Pressure Risk Description While some executives are buoyed by the Fed Chairman’s comments on “Green Shoots” of Economic recovery, a majority of executives are concerned about a prolonged recession due to a lack of confidence in a consumer-led recovery. Moreover, there are concerns regarding a lasting fall-off in consumer demand. An additional concern with the current scenario is that historically, recessions that are associated with both financial crises and global downturns have been unusually severe and long lasting. Industry churn is amplified during and after recessions, wherein some companies reduce workforce, close product lines and pull out of markets, while others make acquisitions at low prices, change product mix and increase market share. Companies who fail to effectively assess and respond to moves by the competition risk market share erosion and may find their long-term growth to be curtailed. Common Indicators Used by Members • • S&P 500 GDP Unemployment forecast Sales/Sales growth forecasts • • Financial results Bad debt/delinquencies Consumer spending Earnings forecast Noted Mitigation Efforts • • • Reduce market exposures Enter new markets Re-evaluate staffing Reduce costs Differentiate product/service • • Improve collections Reduce inventory Segment customers Position brand effectively © 2009 The Corporate Executive Board Company. All Rights Reserved. Common Indicators Used by Members • Competitive research • Customer base & • Competitors moving into new revenue growth markets • Patent life • Market share • Supply & Demand trends • Price trends Noted Mitigation Efforts • • • Reduce expenses • Prioritize customer service Innovate on products • Improve value proposition Differentiate brand • Focus on key competencies Find new clients • Improve / expand product suit Explore M&A opportunities Increase product and service awareness 4

FINANCE AND STRATEGY PRACTICE RISK INTEGRATION STRATEGY COUNCIL Overview of Top 10 Emerging Risks FINANCE AND STRATEGY PRACTICE RISK INTEGRATION STRATEGY COUNCIL Overview of Top 10 Emerging Risks 3. Cost Reduction Pressures 4. Strategic Change Management Risk Description Companies are under pressure to explore further cost reduction after almost two years of aggressive cost reduction across industries. Executives are not only concerned about cutting too deep and hurting long-term growth, but also about focusing on the right type of cost cuts to achieve sustainable benefits. Companies have found that prioritizing only “Easy Wins”, determining cost cuts by benchmarking alone and delegating cost-cutting management to the line, are not yielding sustainable benefits. Risk Description In times of extreme economic volatility, companies look to quickly adjust their strategic plans to the changing environment. However, companies face a risk of strategic change initiatives failing due to a lack of senior ownership, poor timing and not accounting for behavior management. Unanticipated internal opponents can also be a roadblock and create execution risks. Common Indicators Used by Members • • Operating/Profit Margins Cash Flow Budgeting trends Expense Ratios • Competitor Benchmarking • Client feedback in the form of (a) Requests for concessions (b) Rejection of bids Noted Mitigation Efforts • Centralize cost-cutting to maximize cost-cutting gains • Cascade cost-cutting objectives & monitor disaggregated results • Use shared services • Evaluate the impact of cost-cutting on future growth • Lock in business for longer periods at reduced prices • Reduce COGS in addition to SG&A © 2009 The Corporate Executive Board Company. All Rights Reserved. Common Indicators Used by Members • • Performance measures Market share Profitability Market trends • • Compliance surveys CAPEX Medium range budget Industry-wide changes Noted Mitigation Efforts • Review change management process • Communicate change honestly & consistently • Assess employee reaction & morale • Utilize consultants to review strategy • Train managers on change management • Assign responsibility to create accountability 5

FINANCE AND STRATEGY PRACTICE RISK INTEGRATION STRATEGY COUNCIL Overview of Top 10 Emerging Risks FINANCE AND STRATEGY PRACTICE RISK INTEGRATION STRATEGY COUNCIL Overview of Top 10 Emerging Risks 5. Political Risk 6. Liquidity Risk Description In periods of economic turmoil, there’s a greater likelihood of political and economic discontent, which amplifies political risks. With growing political instability and the expanding political risk universe, it is important for organizations to perform thorough country-risk assessments while expanding their operations and protecting their existing global operations. The economic slowdown had raised serious concerns over liquidity management. With corporate credit markets tightening and funding becoming difficult to obtain, companies have had to review their liquidity planning strategies. A lot of companies have postponed their expansion plans because of unavailability of funds. In such an environment, companies should avoid future liquidity crisis by providing the management with clear visibility into threats and opportunities. Common Indicators Used by Members • New laws enacted • Inflation • Trade barriers • Protectionism measures by U. S. /Western counterparts • Government changes • Country-risk ratings Noted Mitigation Efforts • Monitor the changing landscape (banking regulations changes, OTS impact etc. ) internally • Review country-risk reports • Review internal organization structure and placement of operations • Modify business strategy on an as needed basis © 2009 The Corporate Executive Board Company. All Rights Reserved. Common Indicators Used by Members • • Cash flow forecasts • Non-renewal of loan Loan repayments commitments Net new business figures • Inability to access unsecured Decrease in credit line availability long-term funding Noted Mitigation Efforts • Monitor cash flow daily • Reduce spend • Focus on working capital • Sell property at a discount • Manage Treasury operations 6

FINANCE AND STRATEGY PRACTICE RISK INTEGRATION STRATEGY COUNCIL Overview of Top 10 Emerging Risks FINANCE AND STRATEGY PRACTICE RISK INTEGRATION STRATEGY COUNCIL Overview of Top 10 Emerging Risks 7. Information Technology Risk Description The downturn is forcing dramatic changes to organizations’ strategies and business models. With increasing levels of disengagement and layoffs, organizations face tremendous risk of information loss and fraud. Against this backdrop, IT must play a critical role in equipping business partners with the capabilities they need to emerge stronger post recession. Common Indicators Used by Members • • System failures Increased system downtime IT staff turnover Weakened control environment • Information leak • Unmonitored third-party access • Outdated disaster recovery plans Noted Mitigation Efforts • Conduct project and supplier management performance reviews • Conduct Business continuity planning (BCP) and disaster recovery (DR) testing • Conduct ethics and controls training for end-users • Conduct vendor health checks • Supplier management © 2009 The Corporate Executive Board Company. All Rights Reserved. 8. Third-Party Solvency Risk Description In 2009, bankruptcies are expected to rise by over 50%, leaving organizations at higher risk for potential instances of supplier insolvency. In response to rising instances of critical supply failure, many organizations are looking for ways to avert supplier solvency, continuity, and reputation failures before they happen. Common Indicators Used by Members • Timing of payments • Industry feedback • Analyst reports/market intelligence • Unusual billing requests • • Banking trends Credit quality of customers Delay in delivery Changes to contracting terms Noted Mitigation Efforts • Focus on collection from debtors • Leverage IT to plug critical • Conduct due diligence of partners’ supply chain information gaps financial health based on clear • Select reliable suppliers financial and market metrics 7

FINANCE AND STRATEGY PRACTICE RISK INTEGRATION STRATEGY COUNCIL Overview of Top 10 Emerging Risks FINANCE AND STRATEGY PRACTICE RISK INTEGRATION STRATEGY COUNCIL Overview of Top 10 Emerging Risks 9. Talent Risk 10. International Operations Risk Description For many organizations responding to the impact of the recession, organizational restructuring and layoffs have been part of their comprehensive response. Talent risks have been on the rise, marked by increasing employee misconduct and low engagement and productivity levels. Most companies are now looking at ways to address the ramifications of their decisions and rebuild the organization and their teams for the future. The economic recession has led to growing political and economic instability that directly impacts business operations specifically foreign operations. A large number of fraud cases have recently been reported resulting from high levels of disengagement and discontent. As a result, it is becoming important for organizations to undertake thorough risk assessments across all global operations. Common Indicators Used by Members • Turnover/ headcount fluctuations • Compensation • Absenteeism • Loss of work ethic • Declining productivity • Increasing complaints Noted Mitigation Efforts • Conduct targeted training programs • Focus on succession planning • Conduct ongoing, systematic sensing and management of departure likelihood • Promote line-led retention management • Target tracking and retention efforts on key/high risk employees © 2009 The Corporate Executive Board Company. All Rights Reserved. Common Indicators Used by Members • Disengagement/lack of response of foreign unit • FCPA compliance trends/ international law violations • Exchange rate fluctuations • Interest rates • Inflation Noted Mitigation Efforts • Conduct quarterly performance reviews • Conduct training on business practices and FCPA compliance • Conduct local audit and compliance tests 8