Future risk communication

Science and technology have transformed risks and communications in the last century. Smallpox is gone, and polio is fading fast, thanks to vaccines. Communications, commerce and risk have gone global. Wireless networks, wideband communications and immersive interfaces are already in some homes. In the future, ubiquitous communications aids in the form of smart risk agents could tailor both the medium and the message, placing a risk in context for a specific person. By sensing physical risk characteristics and collecting and synthesizing risk information, weighted by judgments about the sources of that information, and conveying these in the media of choice, a smart agent or active technology could provide the ultimate risk communication. Yet theories of risk communication are in their infancy, with some emphasizing cognition and risk control, others social and affective responses that drive behavioral change. To create moral agents, we need to understand how our own and others’ values and goals arise and change in this increasingly information intense society, and how virtual realities can evoke or displace affect, cognition, and social context—that is, life as we know it. Otherwise, we may cross the divide from informed decision making to persuasion without reason.     

Preparing for the worst: public perceptions of risk management innovations

Scholars often call for research on the public’s involvement in crisis and risk mitigation. Yet, before the public can be persuaded to become involved in new mitigation initiatives, risk managers must first understand how members of the public perceive such initiatives. Grounded in diffusion of innovation (DOI) theory, this study presents insights from 70 adult residents of a US urban metro area through focus group research. Findings yield insights about public perceptions of risk management innovations including that ‘greater good’ incentives can motivate interest in innovations (more so than financial incentives), thereby extending DOI theory. In addition, participants suggested mechanisms for facilitating government transparency to encourage program participation, along with additional insights about involving the public in government-sponsored risk management innovations.     

Institutional dimensions underlying public trust in information on technological risk

This paper examines the determinants of trust in public information on technological risk in a petrochemical complex located in Tarragona (Spain). Data from focus groups (eight) and a questionnaire survey (N = 400) are drawn together to analyse how two local communities exposed to major chemical hazards perceive information on risk and its sources. Results show how trust relies on two main factors, namely expertise and trustworthiness, that are significantly influenced by a third one, antagonism. Results also illustrate the relevance of the institutional context when understanding how communities give meaning to the available information on risk.     

Local facility hazard risk controversy and non-local hazard risk perception

Facility siting disputes are as much about the socio-politics in a place as they are about the risks posed by the facility; yet not much is known about how localized controversy about one hazard effects the perception of other, non-local, hazard risks. Our exploratory study tests the idea that a local facility risk controversy (landfill expansion) is tied to an overall sensitivity to risks from a wider range of potentially hazardous facilities. We use logistic regression models of questionnaire survey responses from 205 residents living near two landfills that were recently expanded or proposed to be expanded. Psychometric risk variables, cultural theory of risk variables, and sociodemographic variables are used as controls to see if risk-in-place/context variables related to threat and governance (e.g. fairness and fiduciary equity) predict not only risk from the landfill but also risk from three other potentially hazardous facilities (incinerator, chemical, and nuclear). The risk-in-place/context variables are predictive across all hazards but there is little consistency in the mix of predictors across models. The results suggest that facility controversy is linked to how residents view risks from non-local facility hazards and that this effect varies by place. This points to the need for more research in this area, and is suggestive that risk-hazard controversy may foster localized risk-averse places or wider risk-averse communities.     

Cephalon, Inc. Taking risk management theory seriously

Cephalon Inc., a biotech firm, bought call options on its own stock to meet its conditional cash flow needs. We analyze this decision by using the cash flow hedging concepts of Froot et al., (1993. Journal of Finance 5, 1629–1658). We identify the managerial analyses necessary to apply this theory and discuss managerial considerations absent from the theory. We find that managers consider deadweight costs of risk management, which theory tends to ignore. Theory provides little guidance in how to measure these and other deadweight costs. Finally, uncertainty about the availability of external financing and accounting considerations are critical considerations by managers.     

The institutional work of hospital risk managers: democratizing and professionalizing risk management

The growing importance of risk management programs and policies in health care organizations has given rise to a new organizational figure, the risk managers. This paper seeks to better understand their role by looking at their risk work as a form of institutional work. From an inductive study of hospital risk managers in the Quebec health care sector, we provide a situated account of the risk work or ‘the effortful pattern of practices’ accomplished by hospital risk managers at the intra- and extra-organizational levels. The results show that they engage in two broader recursive forms of institutional work. At the intra-organizational level, it is by building bridges, autonomizing teams, legitimizing risk work, and pragmatizing interventions that hospital risk managers contribute to democratizing the risk management practices in their organization. At the extra-organizational level, it is by networking with colleagues, hybridizing knowledge, shaping identity, and debating solutions that they contribute to articulating a professionalization project. We argue that the recursive relationship between these two forms of institutional work, namely democratizing and professionalizing risk management, demonstrates how the risk work done at one level facilitates the risk work accomplished at the other. The paper provides three contributions. First, it opens the black box of the hospital risk managers’ roles by showing the complexity of their risk work, instead of formalizing expectations about their role in a normative way, as is generally the case. Second, this research provides evidence about how actors with limited collective power and resources such as hospital risk managers participate in disseminating risk management programs and policies. Third, the paper offers a multi-level understanding of the ways by which hospital risk managers work to institutionalize risk management program and policies. The paper ends by discussing the importance of gaining a better understanding of the risk managers’ role and their institutional work.     

Accounting for the Private Finance Initiative

This article examines how the context out of which the PFI emerged has conditioned its implementation. Attention is directed, in particular, towards how public expenditure is scored for the purposes of the national accounts and for public expenditure planning. The Treasury's decision to substitute accruals for cash accounting across central government has significant implications for the accounting treatment of PFI assets. Certain important distinctions are analysed, notably that between assets which generate revenue streams from third-party payers and those which do not. The authors conclude that disclosure practices must give primacy to transparency about future obligations, over claims to commercial confidentiality.     

Modelling Transparency in Disclosure: The Case of Foreign Exchange Risk Management

Abstract:  When managers choose not to disclose all the relevant information in their possession in their financial statements, there is an information gap between the managers and users and consequently a lack of transparency. We model the degree of transparency observed when disclosures of foreign exchange (FX) risk management in financial statements are compared to managerial information on FX risk management policy, as evidenced in questionnaire responses. In this comparative study of US and UK firms we find incomplete disclosure in both samples but with differing aspects. In the US case, the information gap is lower where the information has higher relevance or firms with higher financial risk (greater leverage) are signalling the extent of risk, but the gap is greater where firms are in competitive product markets. For the UK sample, the information gap is significantly lower where firms have higher financial risk or higher liquidity but the gap is greater where the shares are more closely held. We conclude that modelling and explaining this aspect of incomplete accounting disclosure in an international setting must be sufficiently flexible to accommodate national differences in managerial behaviour.     

Re-conceptualizing community in risk research

Community is an important concept for determining the factors that influence peoples’ perceptions of and actions surrounding risk. However, there are multiple and conflicting definitions for the concept of community and scholars operationalize it in various ways. In this paper, we argue for a renewed focus on community as a guiding consideration in discussions of risk management and the related concepts of resilience, vulnerability, and adaptive capacity. We outline classic and current conceptions of community to articulate how its conceptualization in ongoing risk research might lead to different outcomes, foci, or recommendations about collective adaptation. This includes a discussion of how historic and emerging methodological approaches for studying risk make implicit choices about what community is or how it influences collective response. We close by providing a set of potential axioms that can help researchers better integrate the complexity of community into studies of risk and understand how populations respond to it. Better integrating community into studies of risk could promote policies and communication that are tailored to the unique local context of diverse populations. Such tailoring is more likely to promote adoption of risk mitigations among local populations and perpetuate adaptation as a part of local culture. We contend that a more holistic and systematic approach to documenting local context better encompasses the variable influences that community can have on collective ability to respond to risks.     

A systematic review of risk management in innovation-oriented firms

Innovation and risk are inseparable. In fact, literature on innovation management often recommends that innovation-oriented firms must actively monitor, evaluate, analyze and treat future events in order to mitigate risks whenever possible. This approach is particularly important in emergent economies characterized by unstructured national innovation systems and constant economic and market instability. However, there has been no systematic effort to identify and categorize risks that potentially impact businesses based on innovation. Thus, we propose an interpretative framework of risk events with potential financial impact in innovation-oriented firms constructed and tested by means of a mixed studies review. The risk events were identified through a comprehensive systematic search and review of the published literature on risk and innovation. From the 115 works that were analyzed, it was possible to identify nine categories of risk events frequently associated with innovation-oriented businesses that may generate financial impacts. The proposed interpretative framework was tested in an empirical study with 13 innovation-oriented firms located in six Brazilian technological parks. Results from the empirical study suggest that managers found the proposed interpretative framework complete and comprehensive. Moreover, the empirical study signaled which risk events are more relevant for the Brazilian context. The proposed framework is a first necessary step for future development of ERM models applicable in innovation-intensive contexts.     

AN INTRODUCTION TO GAME THEORY AND BUSINESS STRATEGY

Sound managerial decision making often requires “putting yourself behind your rivals' desk.” Assuming rivals are rational and acting in their selfinterest, what decisions are they likely to make and how are they likely to respond to your actions? A complicating factor is that rivals' optimal choices typically will depend on their expectations of what you will do; their expectations in turn depend on their assessments of your expectations about them. This type of circularity or recursive thinking might appear to make the overall problem completely intractable. Yet, this situation is precisely where game theory is most useful. This article introduces the basic elements of game theory within the context of business strategy and shows how managers might use these tools in decision making. This analysis also provides managers with a richer understanding of competition within different market settings. For example, it provides insights into why there is fierce competition in some concentrated industries (such as commercial aircraft), but not in others. Although the authors focus primarily on interactions among rival firms in product markets, these concepts also are useful to managers when dealing with other parties, such as suppliers, employees, or gov‐ernment officials.     

Comparing perceptions of the important environmental characteristics of the places people engage in consumptive,non-consumptive and spiritual activities

Managers, risk assessors, tribal leaders, public policy makers, and the public are increasingly interested in the characteristics of natural habitats where people like to engage in recreational, subsistence, or spiritual activities. Such data are critical for making decisions about human and ecological risk deriving from contaminants, as well as resource protection and land use. In this study we examined the perceptions of Native Americans and Caucasians about the natural places they prefer to engage in consumptive, non-consumptive, and spiritual activities which might expose them to contamination or other stressors. Subjects were interviewed at Post Falls and Fort Hall in Idaho, Cookeville in Tennessee, and at two sites in Long Island, New York, and northern New Jersey. Our objectives were to determine differences in perceptions as a function of category of activity, type of activity, location, and ethnicity. The data indicate that: (1) the highest rated characteristics were unpolluted water, lack of radionuclides that present a health risk, clean air, and no visible smog in the air; (2) all four were among the top-rated ones for each of the four sites; (3) all four were among the top-rated ones for places to perform consumptive, non-consumptive, and spiritual activities; (4) at each site, mean ratings were lowest for spiritual activities; (5) where there were differences, Native Americans rated all characteristics as more important than did Caucasians; and (6) where there were differences, ratings in New Jersey/New York were lower than those from respondents elsewhere. There are many statistically significant response differences between Native Americans and Caucasians, but overall one is impressed by the similarity in relative rankings. These perceptions will be helpful to risk assessors and risk managers in evaluating risk and potential solutions, to land managers for managing environmental resources, and to public policy managers for evaluating how people view natural environments.     

R&D expenditures and implied equity risk premiums

This study investigates the relationship between research and development (R&D) expenditures and risk premiums implied in the costs of equity capital. We posit that R&D expenditures represent an information risk factor resulting from both information asymmetry about R&D between investors and managers and low-quality R&D reporting that impairs the coordination between investors and managers with respect to managers’ investment decisions. Our results support our position by showing a positive association between R&D expenditures and implied equity risk premiums. From this research along with prior studies, investors can have better knowledge about the risky nature of R&D expenditures that drive up implied risk premiums and at the same time provide opportunities to earn excess returns in a short to long horizon. Accounting standard setters can benefit from this study’s findings that R&D expenditures represent an off-balance-sheet risk factor and thus warrant reconsidering SFAS No. 2 for potential capitalization of R&D expenditures.     

GIRA: a general model for incident risk analysis

Most existing risk analysis methods focus on analysing risks that a system might face throughout its life. However, there is no explicit method for risk analysis during incidents. Approaches such as bow-ties and attack trees provide reliable information about triggers and escalation of incidents, but do not cover risk evaluation. Risk matrices include the entire risk analysis process; however, their risk evaluation approach is oversimplified. This paper presents a General Model for Incident Risk Analysis, which formalises the incident risk analysis process through an influence diagram. Our aim is to provide a decision support model that generates reliable risk information and enhances incident risk evaluation.     

The Impact of Affective Reactions on Risky Decision Making in Accounting Contexts

In this study we examine whether managers' affective reactions influence their risk–taking tendencies in capital budgeting decisions. Prior research on risky decision making indicates that decision makers are often risk averse when choosing among alternatives that yield potential gains, and risk taking when the alternatives yield losses. The results reported here indicate that negative or positive affective reactions can change this commonly found risky behavior. Managers were generally risk avoiding (taking) for gains (losses) in the absence of affective reactions, as predicted by prospect theory. However, when affect was present, they tended to reject investment alternatives that elicited negative affect and accept alternatives that elicited positive affect, resulting in risk taking (avoiding) in gain (loss) contexts. The results also indicate that affective reactions can influence managers to choose alternatives with lower economic value, suggesting that managers consider both financial data and affective reactions when evaluating the utility of a decision alternative. These findings point to the importance of considering affective reactions when attempting to understand and predict risky decision making in accounting contexts.     

Three skills every 21st-century manager needs

Over the past decade companies have become more global and employee groups more diverse than ever before. Organizations are less hierarchical and more collaborative. And today's offices are full of once unimaginable technological distractions. We asked experts in cross-cultural communication, information networks, and the science of attention what skills executives should cultivate to tackle these new challenges. Molinsky thinks that managers must overcome psychological barriers in order to act in ways that other cultures find appropriate. Davenport and Iyer explain why the devolution of hierarchy has increased the value of building and wielding influence through digital networks and offer tips for how to do it. And Davidson tells managers to get over their fears about distraction and embrace the brain's natural tendency to divide attention.     

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.     

Security or opportunity: the influence of risk‐taking tendency on risk information preference

It has been suggested that risk avoiders and risk takers differ in the extent to which they focus on the worst and best outcomes of a risky activity. By implication risk avoiders and risk takers should also differ in their risk information preferences. Specifically, as risk avoiders focus more on the worst outcomes, it was hypothesized that they would prefer negative information about the risk. In contrast, as risk takers focus more on the best outcomes, it was hypothesized that they would prefer positive information about the risk. In an information selection task, subjects could select newspaper headlines that indicated negative and positive information about a variety of risks. Contrary to the hypothesis, risk avoiders selected more positive information than risk takers. The results are discussed in relation to the influence of personality on risk taking. One tentative explanation is that differences in anxiety between risk avoiders and risk takers account for these results in that risk avoiders try to find reassurance by seeking positive information. Another is that the participants were seeking reassurance in a relatively involuntary confrontation with risks.     

The seasoned executive's decision-making style

Leaders make decisions every day of their lives, but how they do it changes dramatically over the course of their careers. At lower levels, the job is to get widgets out the door; action is at a premium. At higher levels, the job involves decisions about which widgets to offer and how to develop them. To climb the corporate ladder and be effective in new roles, managers need to change the way they use information and evaluate options. Based on a study of the decision-making profiles of more than 120,000 executives, the authors found that people make decisions very differently in public than they do in private and that the decision styles of successful managers evolve in highly predictable patterns. The most successful managers and executives become increasingly open and interactive in their leadership (or public) styles, and more analytic in their thinking (or private) styles, as they progress in their careers. The research shows that decision-making profiles do a complete flip over the course of a career; that is, the decision profile of a successful CEO is the opposite of a successful first-line supervisor's. When does the major change in focus occur? Somewhere between the manager level and the director level, executives find that formerly effective decision styles no longer work so well. At this point, decision styles fall into a "convergence zone", where managers use all styles more or less equally. From then on, the executives continue to evolve their styles. The most successful managers come to the convergence zone quickly and continue to adjust their styles as their careers progress. Low performers seem to stagnate once they hit the convergence zone; their styles do not evolve in new directions. Clearly, relying on past successes and habits is no guarantee of success-indeed, it may be the road to failure.     

Managerial Ownership and Corporate Hedging

Abstract:  Using information on 443 UK non-financial companies, this work provides evidence supporting the hypothesis that managerial risk aversion is an incentive to deviate from the optimal hedging position. Conflicts of interest between shareholders and managers are at the centre of the decision about the firm's risk profile but are not relevant as determinants of the decision to hedge. This is rather associated with factors enhancing the firm's expected value (underinvestment, scale economies, tax savings).