Risky business, Research report, Managing risk and creating value in a volatile world

The past decade was characterised by dramatic change and widespread uncertainty; rapid technological advances; fluctuating consumer confidence; and intense global competition, notably from China and India. The result has been a more complex and demanding operating environment for executive teams.

All of these factors are profoundly destabilising – add in the effects on capital markets of one-off events such as the Asian financial crisis, the bursting of the dot-com bubble, September 11th, SARS and the Iraq conflict and it’s easy to understand why volatility has become a constant.

The key questions are – how do market volatility and external factors affect companies in the UK? Are UK-listed businesses more exposed than their counterparts around the world? And if so, what can they do to prosper in this environment?

This report is a starting point to answering these questions. We looked at how companies recovered their value after extreme events. We found that firms in the UK are indeed at greater risk from stock volatility. We also found that risk management, although imperative, is only part of the answer. The other part is value creation – creating a ‘value cushion’ that protects companies from external volatility.

To prosper in uncertain times, a company must identify where all its value lies and how that value can be protected, then consistently communicate its strategy to all stakeholders, not just investors.

We do not purport to have a silver bullet to create value, but we do explore how companies that have focused on such strategies have protected their value during inevitable shocks to the market.

This report is part of Deloitte’s ongoing commitment to foster and enhance the UK business environment. We hope you find it useful in provoking boardroom debate.

John Connolly
Senior Partner and Chief Executive
Deloitte & Touche LLP

"One-off events are, by definition, difficult to predict or protect against. Yet their occurrence is inevitable - and their potential for value destruction immense".