Protecting the flock
Marketing key to risk management buy-in
by Michael Bradford

When Thierry van Santen put together the company's enterprise risk management system approximately eight years ago, he needed a name that would appeal to the Paris-based food maker's business units.

"DANONE is a marketing company, so we needed to give a brand to all new projects," said Mr. Van Santen, who is DANONE's executive vice president of the business risk management department.

To borrow from the stories of ancient Rome, the enterprise risk management program was christened Vestalis, after Rome's female priests of Vesta, the goddess of the hearth. These vestal virgin priests were given the task of guarding the sacred fire in the Temple of Vesta.

"DANONE is the temple and we would be the guardian of the temple," Mr. Van Santen said.

Branded with its symbolic name, the enterprise risk management program was launched in 2001.

Technique

A name was important, Mr. Van Santen remarked, because the enterprise risk management program had to be marketed to DANONE's operations.

Mr. Van Santen put in play a technique he learned while working at Paris-based automotive supplier Valeo Management Services before joining DANONE. Valeo's chairman taught him that there needed to be a buy-in for such efforts. "He told me that if they do not buy, they will not care about what you are doing. They need to feel the cost. You do not have ownership if it is free."

Once the buy-in was completed throughout the DANONE organization, the program was made mandatory. And there no longer is a cost for a unit to implement Vestalis.

Mr. Van Santen has created an enterprise risk management approach that appears to be the most sophisticated in his country, said Shereen Akad, who has worked as his broker for seven years at Aon France. "As far as I know, he is the only risk manager with this kind of tool in France," she said.

The enterprise risk management program is not a standardized approach that is applied the same way to each business unit, Mr. Van Santen stressed. Each general manager is considered the risk manager of the unit and must abide by DANONE's risk management charter, he explained. "The chief financial officer is in charge of implementing Vestalis with the support of my team."

"We help them, and then it is up to them to make updates when they want," said Mr. Van Santen. "We help them with the risk assessment, which takes two or three days of brainstorming. Once they have a risk map, it is up to them to decide what kind of action plan they want to implement."

Mr. Van Santen says he remains at arm's length after the risk map is done. "It is very bad when the risk manager tells people what to do because they lose the ownership of the risk. They have to implement their own action plan," he said.

Some colleagues questioned whether it was right to leave so much of the risk management decision making to the units, Mr. Van Santen said. But, he compared it to telling someone that their shoes are untied. It is up to them to prevent the risk of an accident. "If you do not take action, and fall down, it is your problem, not mine."

Exceptions to the rule

There are exceptions if risks exist that could significantly impact DANONE at the group level, Mr. Van Santen said. If such a risk is identified, the risk management department works closely with the unit to control the exposure, he explained. "But most of the risks would affect their balance sheet and not the corporate balance sheet."

The units' risk management performance is monitored by Mr. Van Santen's department, and those that underperform are expected to make changes.

A risk manager is like a shepherd, Mr. Van Santen said of his role. "Most of the sheep are going in the right direction, but there are always a few going off to the left or the right, and you need to send them back in the right direction. That is roughly the methodology that we apply."

At the group level, DANONE compiles consolidated risk maps from those put together by the business units. These maps cover each line of DANONE's business, such as diary products and bottled water. There are also maps on risks, such as supply chain, legal exposures and others. By consolidating these maps, DANONE gains an understanding of its overall group risk, Mr. Van Santen explained.

Insurance coverage on the units' risk is handled mostly at the group level, Mr. Van Santen said. "Insurance is 90% centralized. At the local level, they just keep automobile risks. Even with that, they have to get approval from us and get some guidelines on what to take."

Self assured

A premium allocation system is in place that determines insurance costs for the units based on their risk management performance. FM Global, one of DANONE's insurers, performs a risk management audit and a rating of one to five is assigned to each unit. The higher a unit's rating, the better deal it will receive on its coverage.

Mr. Van Santen would not reveal the amount of property/casualty insurance DANONE purchases, but said the company's coverages are written by a pool of insurers led by AXA S.A. and includes FM Global, Allianz S.E. and others.

The company's brokers are Aon Corp. and Marsh Ltd. on most of its risks, said Mr. Van Santen.

DANONE keeps a €7.5 million per loss retention in DANONE Re, its Luxembourg-based captive insurer. "That means we are self-insured for 99% of what happens," said Mr. Van Santen.

The captive's retention has been exceeded only once, by property and business interruption losses from an electrical fire at a DANONE facility in France. That loss barely exceeded the retention, Mr. Van Santen said.