Risk management:
The secrets of success

German dialysis specialist Fresenius Medical Care has a reputation among investors and analysts for 'telling it like it is'. The company's risk management reporting is no exception. "In our business, we deal with strict protocols knowing that we treat patients with a life threatening condition – where the reputation of your company is totally dependent on the quality of your service as well as your product. So we are nearly paranoid about quality, which is why we are paranoid about risks," explains Oliver Maier, head of investor relations and corporate communications at the company.

So what is the key to communicating risks and risk management processes effectively? "I think often there is a misperception that a company should only communicate good news. I think this is questionable," Maier argues. "It's about how you communicate all information: you pay into a reputational 'account' during the good times. Then when times get worse, you can live off that account. You have to communicate the bad news as transparently as the good news. Yet some companies tend to overemphasise the latter and under-play the former. As much as it might hurt the share price in the short term, honest communications of bad news and how issues are expected to be solved will also help your reputation in the long term."

Heineken www.annualreport.heineken.com/

Banks and healthcare firms don't have a monopoly on great risk management communications. Dutch brewer Heineken's slick, eye-catching, highly interactive 2010 online annual report has a risk section that reaches parts that other companies cannot. Clickable section headers allow the user to expand more detailed information about specific areas of risk management. And the content itself is refreshingly open and direct, as the following quote illustrates:

"Alcohol abuse remains a serious concern in many markets and could prompt legislators to introduce further restrictive measures including restrictions and/or bans on advertising, sponsoring, points of sale and increased government tax. Further restrictions of our commercial freedom to promote and sell our products could lead to a decrease in brand equity and potentially in sales and damage the industry in general."

• Provides a wider context for the business environment by clarifying how external factors affect the company.
• Explanation of risks that could materialise in the future.

Novo Nordisk www.annualreport2010.novonordisk.com/

Over in Denmark, this world-leading diabetes care company provides another important lesson for effective risk management reporting: put the headlines in print and offer the reader more in depth information on line, in this case at www.annualreport2010.novonordisk.com/.

In the risk section of this site, users can use a clear navigation system to seamlessly switch between information about Novo Nordisk's approach to risk management and details of the risks themselves. It's neat, simple and intuitive.

• Description of how risks are being managed and governed in the organisation through policies, committees and systems.
• Explanation of both short-term and long-term risks.

Shell http://tinyurl.com/6pwneyf

No sector has been reminded of the importance of risk management so starkly in recent months as that of oil and gas.

Shell has long been a leader in scenario planning and risk management – and the quality of its risk communications reflects this. For example, the 'risk factors' section of the latest business review provides cogent yet comprehensive information on the potential social, legal, environmental and economic hazards the company faces. The design is far from fancy, but content is clear and direct.

• Specific risks applied to Shell rather than generic risks.
• The report gives further explanation and detail in the Form 20-F.
• Summary bullet points of risk management approach in review.

Fresenius Medical Care www.fmc-ag.com/2672.htm

This German healthcare company's 2010 report clearly outlines both its strategic approach to risk management and the specific risks that the business faces.

Descriptions of business, economic and other risks are cogent and direct – giving readers a comprehensive view of the challenges that the company faces and how the management team plans to overcome them.

• The report outlines specific risks facing the company and explains how it deals with them in a practical manner.
• Emerging risks are discussed throughout the risk section.

Banco Santander www.santander.com

Banco Santander's communications team's response to the financial crisis is to give investors exactly what they are looking for – and possibly much more. The firm devotes 48 pages of its latest annual report to risk management, but crucially, also offers the reader plenty of text and visual summaries to help them digest the wealth of material on offer. It's a highly effective marriage of user-friendly structure and in-depth content.

• The report makes good use of visual aids to get the message across.
• Explanation of how risk was managed throughout the year and how future risks are being addressed.
• Informative section on risk governance, framework, structures and processes within the company.