A report of TRUSTNET on risk governance--lessons learned

During the 1990s, the current regulatory frameworks and decision making processes in the European Union for hazardous activities such as nuclear and chemical waste management, hazardous industrial facilities, food production, and genetically modified organisms (GMOs) in agriculture and health care, were confronted at both national and local levels with significant difficulties in trying to meet the different concerns of the various categories of stakeholders involved. The TRUSTNET concerted action was established to assess these difficulties and their consequences and to propose more coherent, comprehensive and equitable approaches for evaluating, comparing and managing health and environmental risks. This paper presents the outcomes of this programme. A European network of some 80 participants was established comprising an interdisciplinary team of regulators, experts and stakeholders with experience of industrial, natural and medical risks. The participants identified the main challenges to the governance of hazardous activities on the basis of a detailed analysis of some 11 case studies, and determined criteria for assessing what can be considered as 'good' governance of hazardous activities. As a result of these investigations, an interdisciplinary model describing the available approaches to governance of hazardous activities is proposed in the form of two main paradigms: Top-Down Governance and Mutual Trust Governance. Using this model the difficulties encountered by current approaches to risk regulation are interpreted. The new perspective describes how the two paradigms can interact in the continuous social dynamic to allow the maintenance of social cohesion.     

CULTURE,CORPORATE GOVERNANCE,AND DIVIDEND POLICY: INTERNATIONAL EVIDENCE

We find that Hofstede's cultural dimensions—uncertainty avoidance, masculinity, and long‐term orientation—remain significant in the determination of firms’ dividend policies, even after controlling for corporate governance. We also show that this association varies with the strength of corporate governance, measured by the degree of investor protection. Hence, national culture and investor protection independently affect firms’ dividend payouts but also interact with each other, such that strong investor protection induces higher dividend payouts in high uncertainty avoiding and/or highly masculine cultures. Our results provide strong evidence that cultural differences matter and offer additional power in explaining variations in dividend policies.     

Dynamic simulation of forest management normative scenarios: the case of timber plantations in the southern Chile

Accounting for spatial issues (spatially explicit simulation, geographical amenities and advantages of land use and cover changes, etc.) to build prospective scenarios is a crucial issue for better assessment of possible impacts on the environment. Such spatialized scenarios and their implications allow societies to reduce the uncertainty of the future by exploring various strategies for land use changes. Despite the wide diversity in existing scenario-building techniques, two different approaches can be distinguished (exploratory vs. normative) for their methodological implications. The originality in this study comes from the use of a relevant exploratory (dynamic) approach to map normative scenarios which, in most cases, are represented throughout the combination of narratives and synchronic land use and cover maps. The objective of the article is to apply this dynamic exploratory simulation approach to spatialize normative scenarios within the framework of forest management in southern Chile. In the results, two contrasting images of the future are compared, with the preservation of native forests on one hand and the spread of exotic timber plantations on the other.     

National culture and bank risk-taking

We investigate the relation between national cultural values and bank risk. Despite the rigid transnational regulatory oversight of systemic European banks, we find evidence of an economically significant association between cultural values and domestic bank risk. Specifically, we report a positive (negative) association between the cultural values of individualism and hierarchy (trust) and domestic bank risk-taking. Consistent with our predictions, this relation weakened during the recent financial crisis and does not hold for global banks, regardless of the period under investigation. Our findings are robust to endogeneity tests that mitigate concerns regarding reverse causality and confounding effects affecting our conclusions.     

Do differences in national cultures affect cross-country conditional conservatism behavior under IFRS?

The purpose of this paper is to explore whether international differences in cultural dimensions of individualism and uncertainty avoidance affect how managers from different countries implement International Financial Reporting Standards (IFRS) and influence cross-country conditional conservatism behavior. We analyze the conditional conservatism behavior of publicly listed firms in 14-member countries of the European Union (EU) during the period 2006-2016. The results confirm the relationship between the individualism and uncertainty avoidance dimensions of national culture and conditional conservatism in the post-IFRS period. Particularly, conditional conservatism is higher in countries where individualism is lower and where uncertainty avoidance is higher.     

Is it possible to make scientific forecasts in social sciences?

This article attempts to answer the question, whether and how it is possible to make scientific forecasts in social sciences through the investigation of the actual scientific-philosophical problems and methodological aspects of futures studies.¹ Following a critical analysis it describes the scientific-philosophical features of uncovering and forecasting the possible futures from the classic predictions to the latest approaches. In the methodological chapter it turns its attention to the impossibility of making scientific predictions and demonstrates the methods with the help of which—reacting to the challenges of uncertainty, instability and various changes—futures studies can perform its original function, i.e. supports present decisions providing information about the future.     

Evaluating lotteries,risks, and risk‐mitigation programs

Two experiments were designed to explore the existence of systematic differences in risk perceptions and risk attitudes between Chinese and US participants. The first experiment involved ranking monetary lotteries using measures of perceived riskiness and willingness to pay (WTP). Several simple heuristics were evaluated to predict perceived riskiness and WTP. Using WTP responses, Cumulative Prospect Theory functions were determined for participants from both countries. The second experiment involved ranking multi‐attribute real‐world risks and associated risk‐mitigation programs using measures of concern and preference, respectively. Compared to their US counterparts, Chinese participants are found to be less risk averse, more concerned about risks with higher catastrophic potential, and more in favor of risk‐mitigation programs with greater scope of benefit. The results also reveal higher within‐group agreement by Chinese participants for all tasks. For both national groups, the within‐group agreement was highest when ranking risk‐mitigation programs, but lowest when ranking lotteries with negative expected value. The implications of cross‐cultural versus cross‐task variation are discussed.     

Sociological approaches to risk: strong in analysis but weak in policy influence in recent UK developments

Sociological approaches to risk and uncertainty are well‐developed. These approaches have played an important role in analysing the significance of risk and uncertainty in modern social life. However, it is approaches based on rational actor perspectives in New Public Management that have become pre‐eminent in handling social risks in recent UK policies. This paper tackles the puzzle of why sociology is strong in critique but much weaker in policy influence by pointing to the institutional and contextual standing of approaches which offer a natural home to individual rational actor approaches within UK government.

Approaches that understand and analyse risk in statistical terms have been particularly influential in many aspects of modern life. A second stream, that has tended to attract less attention, stresses linkages between these approaches and the growth of particular institutions. The challenges faced by modern states in a post‐industrial and globalised world are widely discussed. An important response, particularly prominent in the UK and especially in social policy‐making, has been New Public Management, associated with an individual rational actor paradigm. Sociological approaches to risk have contributed a number of critiques of this development, however these critiques have failed to gain much purchase on policy‐making. One reason is the extent to which approaches which rest on an individual rational actor paradigm are entrenched within the institutional framework of policy‐making. This paradigm rests on a different approach to agency than that which is most influential in sociology.     

Uncertainty avoidance,risk tolerance and corporate takeover decisions

In this paper, we examine the role of national culture in corporate takeover decisions, by arguing that managerial risk tolerance (a combination of risk aversion and risk perception), at the national level, is a cultural trait and affects the expected net synergies CEOs require. We propose a theoretical framework that links CEO risk tolerance to the expected net synergies. We empirically show that CEOs of firms located in countries with lower levels of risk tolerance, measured by Hofstede’s (1980, 2001) uncertainty avoidance score, require higher premiums on takeovers, and show that uncertainty avoidance plays a greater role in relatively large takeovers. Additional testing reveals that CEOs from high uncertainty avoiding nations engage less in cross-border/cross-industry takeovers, suggesting that uncertainty avoidance captures more the CEO’s risk perception than his/her risk aversion.     

Obituary

The environmental risk associated with genetically modified organisms (GMO) implies that new approaches to risk assessment, risk management and risk communication are needed. In this paper we discuss the role of the precautionary principle in policy responses to GMO risk. We first discuss application of the criteria in the European Environment Agency report “Late lessons from early warnings: The precautionary principle 1896–2000” to environmental GMO risk, with focus on crop plants. Moreover, we discuss Bayesian analysis in the context of improving the informational basis for decision‐making under uncertainty. Finally, environmental uncertainties are intertwined with economic uncertainties. Providing incentives for improved risk assessment, risk management and risk communication is crucial for enhancing environmental and social responsibility and thereby facilitate implementation of precautionary approaches. We discuss environmental and social screening of companies as an example of how such incentives can be provided.     

Risk attitudes and migration experience

Although risk and uncertainty are intrinsic to human migration, there is surprisingly little explicit research on the willingness to take risks in this context. This paper analyses whether migrants are more or less likely than non‐migrants to be risk tolerant, and whether these differences are gendered. Attitudes are explored in terms of responses under conditions of both risk and uncertainty, and self‐assessment of capabilities is also taken into account. The research is based on a sample of students who provide a relatively homogeneous group in socio‐economic terms, and relatively large numbers of individuals with experiences of temporary migration. Their attitudes to risk were assessed under experimental conditions, which measured their willingness to take risks on hypothetical gambles under different conditions. While there are some differences between males and females, and between migrants and non‐migrants, the outstanding finding is the far greater risk tolerance of female migrants as opposed to female non‐migrants, especially when compared to males.     

Communities as a risk in mining: managing community legitimacy

Abstract

Using three cases from mining multinational enterprises (MNEs) in Armenia, this article conceptualises community risk, providing an alternative framework to conventional risk management approaches when managing local community relations. These approaches have been struggling to capture the increasingly complex risks originating from communities – both those who are directly affected by mining activities and the ones who have a vested interest in mining. The article defines two types of community relations which mining companies manage: communities of place (CofP), who live near the mine and are directly affected by its operations, and communities of interest (CofI), who are outside interest groups either opposing or supporting a given project. Community risks arise when CofPs create meaning about the legitimacy of the changes introduced into their physical and social environment, leading them to take action that affects the MNEs’ risk exposure to political, cultural or financial risks. The CofP can present these types of risks by acting alone or in cooperation with the CofI, who often have the resources and knowhow to affect corporate decision-making. The article contributes by defining community risk as an increasingly salient source of uncertainty for mining companies and MNEs in particular. Conceptualising community risk as the lack of legitimacy with these important stakeholder groups enables MNEs to strategise and adopt practices which are adapted to the local context. At the same time it assures investors, political and cultural stakeholders that the communities who have a specific interest in the project accept its impact.     

Preparing for disaster: a comparative analysis of education for critical infrastructure collapse

This article explores policy approaches to educating populations for potential critical infrastructure collapse in five different countries: the UK, the US, Germany, Japan and New Zealand. ‘Critical infrastructure’ is not always easy to define, and indeed is defined slightly differently across countries – it includes entities vital to life, such as utilities (water, energy), transportation systems and communications, and may also include social and cultural infrastructure. The article is a mapping exercise of different approaches to critical infrastructure protection and preparedness education by the five countries. The exercise facilitates a comparison of the countries and enables us to identify distinctive characteristics of each country’s approach. We argue that contrary to what most scholars of security have argued, these national approaches diverge greatly, suggesting that they are shaped more by internal politics and culture than by global approaches.     

New Risk-Based Capital Standards in the European Union: A Proposal Based on Empirical Data

In response to criticism concerning the current solvency system, the European Commission is developing new rules for insurance companies operating in the member states of the European Union (EU). Under this so-called Solvency II concept, an insurer is allowed to verify its solvency by using an internal risk management model previously approved by the regulatory authority. In this article we develop such an internal risk management approach for property-liability insurers that is based on dynamic financial analysis (DFA). The proposed concept uses a simulation technique and models the central risk factors from the investment and underwriting areas of an insurance company. On the basis of the data provided by a German insurer, the ruin probabilities under different scenarios and varying planning horizons are calculated.     

Adaptive planning and uncertainty resolution

The article discusses uncertainty resolution and the approaches to uncertainty in planning. Statically perceived uncertainty may be described more or less explicitly in decision making. Stating various possible outcomes and, possibly, their numerical probabilities may allow quantitative theory to be applied. However, there will be a residual of genuine uncertainty due to the limits set by the available information. By “buying” more information the decision maker can decrease the genuine uncertainty. It is also often possible to reduce uncertainty by waiting. The most effective way is to state the expectations explicitly and to let the various future states of information correspond to alternative decisions in a conditional strategy. This requires a new kind of forecast that refers to the development of information available. A less efficient mode of planning can still take into consideration the fact that revisions are expected. This is flexible planning in a wide sense.     

Managing vulnerability: the implementation of vulnerability reduction measures

Activities involving hazardous substances may cause safety risks to the environment. In addition to hazard reduction measures, such as implementing safety management systems at hazardous facilities, and exposure reduction measures, such as employing safe distances between vulnerable objects and hazardous activities, safety risks can be further minimised through the implementation of vulnerability reduction measures. In the area near where activities involving dangerous substances are being carried out, measures can be taken to reduce the vulnerability, such as increasing the possibilities for emergency response and evacuation. This paper examines what the issues influencing the consideration and implementation of vulnerability reduction measures are. This is done through an examination of land use planning projects in the Netherlands and an analysis of two examinations from the National Human Environment and Transport Inspectorate on the implementation of vulnerability reduction measures to discuss the representativeness of the findings for the Netherlands. The examinations, including the examinations of the Inspectorate, show that the consideration of vulnerability reduction measures is narrower than required by Dutch rules and regulations. Additionally, the implementation of measures is limited. Only half of the vulnerability reduction measures that are adopted in land use plans are actually implemented. Important factors that hampered the consideration and adoption of measures are the restrictions of actual rules and regulation with respect to the enforceability of measures, the limited expertise of those involved and the lack of clarity in tasks and roles regarding the consideration and monitoring of vulnerability reduction measures. More fundamentally, the effectiveness of measures and the need for further risk reduction was discussed. Consequently, more insight is required into the costs and benefits of vulnerability reduction measures and if a more explicit consideration of vulnerability in land use planning practices is desired, elaboration will be needed in the areas of planning legislations, procedures and expertise.     

Cultural resources and public trust shape attitudes toward climate change and preferred futures—A case study among the Norwegian public

Since climate change mitigation likely will affect most sectors of society, adapting to climate change essentially requires the public to envision and adjust to alternative futures. There is a need for more studies on the social basis for climate change asking why people hold the attitudes they do, rather than the dominant tendency to ask how to change attitudes and behavior. Research in different fields show that fundamental life values and worldviews are shaped through life and heavily influenced by early life socialization and culture, which in turn can shape attitudes toward specific phenomena like climate change. We surveyed a representative sample of the Norwegian public and examined how cultural resources and trust in environmental governance institutions are related to attitudes toward climate change. High levels of trust are associated with a tendency to perceive climate change as human caused, and low levels of trust correspond with stronger beliefs that climate change are natural phenomena. High levels of cultural resources are found among climate change deniers as well as believers, indicating that groups with different political, professional and intellectual orientations, as well as life histories, may not trust climate change science. We argue that improved knowledge about the social basis for climate change is an imperative part of futures-oriented expertise.     

Rights in rem,Article 5 and the EC Insolvency Regulation: an English perspective

The treatment of security interests is central to any insolvency régime, national or transnational. Under Article 5 of the EC Regulation on Insolvency Proceedings (E.C. 1346/2000) extensive protection is given to a security interest—or right in rem—over assets of the debtor situate in a Member State other than one in which insolvency proceedings have been opened. The absence, thus far, of any significant body of European case law on Article 5, allows commentators to put forward a range of views on how Article 5 ought to be applied. This article aims to examine the scope of Article 5 protection both conceptually and in terms of illustrations drawn largely from English insolvency law and practice. Particular attention is given to the following issues: what is meant by the ‘opening of insolvency proceedings’ with reference to Article 5; when a liquidator may pay off the holder of a right in rem; whether the rules under the Regulation for determining the situs of an asset alter the English common law position; whether Article 5 prohibits the discharge of an underlying debt by way of a restructuring plan; the position of unsecured creditors who attempt to acquire rights in rem prior to the opening of insolvency proceedings; and whether the English court's equitable jurisdiction to enforce a charge which does not comply with the lex situs, survives the coming into force of the Regulation. Through the discussion of these topics, this article seeks to identify an approach to the interpretation of Article 5 which is consistent not only across the wide range of issues identified but also with the broad policy objectives underlying the treatment of in rem rights in the Regulation. Copyright © 2006 John Wiley & Sons, Ltd.     

National Culture and the Valuation of Cash Holdings

Prior studies document that national culture traits are systematically related to cash holdings and attribute this to managerial cultural predispositions. However, it is possible that these preferences reflect investors’ cultural preferences and that managers are simply catering to investors’ preferences. It is also not clear whether the cash holding effects previously documented are value maximizing. By examining the impact of national culture traits on cash valuation, we are able to provide insight into these questions. Specifically, we examine the effect of three national culture traits – individualism, uncertainty avoidance and long‐term orientation – on firm cash valuation. Our results suggest that the previously observed effects of cultural traits on cash holdings and attributed to managerial cultural biases do not reflect investors’ preferences and are not value maximizing.