GE 2009 Annual Report Download - page 34

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32 GE 2009 ANNUAL REPORT
• The Public Responsibilities Committee oversees risks related
to GE’s public policy initiatives, the environment and similar
matters.
• The Management Development and Compensation Committee
monitors the risks associated with management resources,
structure, succession planning, development and selection
processes, including evaluating the effect compensation
structure may have on risk decisions.
• The Nominating and Corporate Governance Committee over-
sees risks related to the company’s governance structure and
processes and risks arising from related person transactions.
The GE Board’s risk oversight process builds upon management’s
risk assessment and mitigation processes, which include stan-
dardized reviews of long-term strategic and operational planning;
executive development and evaluation; regulatory and litigation
compliance; health, safety and environmental compliance; financial
reporting and controllership; and information technology and
security. In August 2009, GE appointed a Chief Risk Officer (CRO)
with responsibility for overseeing and coordinating risk assess-
ment and mitigation on an enterprise-wide basis. The CRO leads
the Corporate Risk Function and is responsible for the identification
of key business risks, ensuring appropriate management of these
risks within stated limits, and enforcement through policies and
procedures. Management has two committees to further assist
it in assessing and mitigating risk. The Policy Compliance Review
Board (PCRB) meets between 12 and 14 times a year, is chaired
by the company’s general counsel and includes the chief financial
officer and other senior level functional leaders. It has principal
responsibility for monitoring compliance matters across the
company. The Corporate Risk Committee (CRC) meets at least four
times a year, is chaired by the CRO and comprises the Chairman
and CEO and other senior level business and functional leaders.
It has principal responsibility for evaluating and addressing risks
escalated to the CRO and Corporate Risk Function, and also reports
to the Board on risk.
GE’s Corporate Risk Function leverages the risk infrastructures
in each of our businesses, which have adopted an approach that
corresponds to the company’s overall risk policies, guidelines and
review mechanisms. Our risk infrastructure is designed to identify,
evaluate and mitigate risks within each of the following categories:
• STRATEGIC. Strategic risk relates to the company’s future busi-
ness plans and strategies, including the risks associated with
the markets and industries in which we operate, demand for
our products and services, competitive threats, technology and
product innovation, mergers and acquisitions and public policy.
• OPERATIONAL. Operational risk relates to the effectiveness of
our people, integrity of our internal systems and processes,
as well as external events that affect the operation of our
businesses. It includes product life cycle and execution, product
performance, information management and data security,
business disruption, human resources and reputation.
• FINANCIAL. Financial risk relates to our ability to meet financial
obligations and mitigate credit risk, liquidity risk and exposure
to broad market risks, including volatility in foreign currency
exchange and interest rates and commodity prices. Liquidity
risk is the risk of being unable to accommodate liability
maturities, fund asset growth and meet contractual obligations
through access to funding at reasonable market rates and
credit risk is the risk of financial loss arising from a customer
or counterparty failure to meet its contractual obligations.
We face credit risk in our industrial businesses, as well as in our
GECS investing, lending and leasing activities and derivative
financial instruments activities.
• LEGAL AND COMPLIANCE. Legal and compliance risk relates
to changes in the government and regulatory environment,
compliance requirements with policies and procedures,
including those relating to financial reporting, environmental
health and safety, and intellectual property risks. Government
and regulatory risk is the risk that the government or regula-
tory actions will cause us to have to change our business
models or practices.
Risks identified through our risk management processes are
prioritized and, depending on the probability and severity of the
risk, escalated to the CRO. The CRO, in coordination with the CRC,
assigns responsibility of the risks to the business or functional
leader most suited to manage the risk. Assigned owners are
required to continually monitor, evaluate and report on risks for
which they bear responsibility. We have general response strat-
egies for managing risks, which categorize risks according to
whether the company will avoid, transfer, reduce or accept the
risk. These response strategies are tailored to ensure that risks
are within acceptable GE Board tolerance levels.
Depending on the nature of the risk involved and the particu-
lar business or function affected, we use a wide variety of risk
mitigation strategies, including hedging, standardized processes,
approvals and operating reviews, insurance and strategic planning
reviews. As a matter of policy, we generally hedge the risk of
fluctuations in foreign currency exchange rates, interest rates and
commodity prices. Our service businesses employ a comprehen-
sive tollgate process leading up to and through the execution of
a contractual service agreement to mitigate legal, financial and
operational risks. Furthermore, we centrally manage certain risks
through insurance determined by the balance between the level
of risk retained or assumed and the cost of transferring risk to
others. We counteract the risk of fluctuations in economic activity
and customer demand by monitoring industry dynamics and
responding accordingly, including by adjusting capacity, imple-
menting cost reductions and engaging in mergers and acquisitions.