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Development of Risk Management Mechanism and the System of Risk Metrics to Evaluate and Enhance the Long-Term Orientation of the Strategies of Non-Financial Companies

Author

Listed:
  • Sergey Grishunin

    (School of Finance, HSE University, 101000 Moscow, Russia)

  • Svetlana Suloeva

    (Institute of Industrial Management, Economics and Trade, Peter the Great St. Petersburg Polytechnic University, 195251 Saint-Petersburg, Russia)

  • Ekaterina Burova

    (Institute of Industrial Management, Economics and Trade, Peter the Great St. Petersburg Polytechnic University, 195251 Saint-Petersburg, Russia)

Abstract

Companies that are performing innovation-focused strategies or experiencing digital transformation are exposed to significant long-term risks. The untimely and inefficient management of these risks leads to the destruction of the company’s value and calls into question its survival. This is often underpinned by companies following strategic management with a short-term horizon. Such “strategic myopia” prevents timely identification and treatment of strategic risks and destroys value due to physical and intellectual capital investment restrictions. However, the existing mechanisms of setting up risk management architecture neither addresses the lengths of the horizon and the alignment of the horizon with the strategic objectives, state of the environment and stakeholder expectations nor provides the tools for evaluating the horizon of the firm’s strategy. Moreover, existing systems of evaluating short-termism rely only on financial and governance metrics and do not address environmental and social factors. We closed these gaps and developed a strategic risk-controlling mechanisms to set up the risk management architecture that expanded “conventional” risk management analysis and addressed the “strategic myopia”. We also worked out the critical tool of the mechanism—the system of key risk metrics (SKRI) aimed at assessing the degree of a company’s following of long-term strategic orientation. Finally, we tested it on a sample of Russian non-financial companies. Testing results revealed a strong and positive correlation between the management’s decision to follow a long-term strategic focus and the growth of companies’ long-term value (measured by economic value added (EVA)). SKRI can be utilized in strategic risk controlling to assess the company’s propensity to follow a short-term horizon, evaluate its ability to maintain sustainable value creation, and develop recommendations to stakeholders to expand its strategic focus.

Suggested Citation

  • Sergey Grishunin & Svetlana Suloeva & Ekaterina Burova, 2022. "Development of Risk Management Mechanism and the System of Risk Metrics to Evaluate and Enhance the Long-Term Orientation of the Strategies of Non-Financial Companies," Risks, MDPI, vol. 10(9), pages 1-16, September.
    • Handle: RePEc:gam:jrisks:v:10:y:2022:i:9:p:182-:d:915205
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    References listed on IDEAS

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    1. Pogach, Jonathan, 2018. "Short-termism of executive compensation," Journal of Economic Behavior & Organization, Elsevier, vol. 148(C), pages 150-170.
    2. Yujing Gong & Kung-Cheng Ho, 2021. "Corporate social responsibility and managerial short-termism," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 28(5), pages 604-630, September.
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    Cited by:

    1. Weiyu Zhang & Xinyue Li & Shaowei Liu & Jong-wook Kwon, 2023. "The Chairman’s Rural Origin and Short-Term Expenditures in China," Sustainability, MDPI, vol. 15(18), pages 1-20, September.
    2. Hasan Yalçın, 2024. "Metric Conflict in Financial Analysis: A Comparison and Application of EBITDA and EVA," Muhasebe Enstitusu Dergisi - Journal of Accounting Institute, Istanbul University Business School, vol. 0(70), pages 39-57, January.

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