Tugas Mata Kuliah
CORPORATE RISK MANAGEMENT 2021
Case study: BLUEWOOD CHOCOLATE
KELOMPOK 8
ALOYSIUS ADITYA NUGRAHA
GUSTI RAHAYU ANWAR
HENDRIK PANTHRON PANGARSO MURSID
- 15121830055
- 15121910059
- 15121910015
PROGRAM MAGISTER MANAJEMEN BUSINESS MANAGEMENT
UNIVERSITAS PRASETIYA MULYA
JAKARTA
2021
I.
BUSINESS OVERVIEW
Bluewood is a medium chocolate company based in the U.S.A, built by John Ferguson
Senior around 50 years ago. The Bluewood is named after its blue warehouse in his
family building where he used to play around during his childhood. As a bulk chocolate
producer, Bluewood received cocoa from U.S based importers as well as self-imported
it from Brazil, Ecuador, Costa Rica, and Dominican Republic. It runs Business to
Business type by spreading the output to the whole country before exporting Canada,
Mexico, and Eurozone with 75% and 25% share. Due to founder limitation, and
regeneration for the company, he transferred his leadership to his son John Ferguson
Junior.
II.
PROBLEMS
Bluewood is owned by 4 big parties (Figure 1) where it has its own interests or conflict
after money that they earned toward investments. The successor could not fully run his
new role due to the parenting style which was dominated by the founder. The private
equity intention to leave after the agreed maturity period (5 years) constraint by the low
valuation. Further, the company's goal to bring major profits to the funds’ share
triggered it to pay funds through dividends and not internally reinvested. As such, it put
its liquidity ability at higher risk added by less coordination between the functional
department, negative response received by CFO from board members, and its
requirement to pay sugar and milk and high price.
Figure 1. Bluewood Chocolates’ Ownership Structure
There were also some certain conditions that describe some aspect of the company’s
not going well as a company should be. In the management aspect, Poor Coordination
between Section become a major management problem which also brings some cases
and fraud dominated by report manipulation to achieve target. On the other hand, the
upper management also decided no steps were taken to improve corporate governance
and risk management. The ownership also became a problematic aspect which the
family business model still strongly attached to the management and the legacy of the
initial founder, his son was not capable to take the captain seat. The private investor
considered Ferguson Junior to be a weak CEO who is dominated by his father and
Ferguson Junior doesn’t believe in the company & prefers to monetize his share.
It didn't stop right there, the financial issue also became a major problem to the
company. A new CFO was onboard to fix the problem, and she figured out that the
company had Volatile and unpredictable financial results in the last couple of years.
More, she also finds out that the funds were paid out as dividends rather than being
reinvested internally. It's become a major trigger to The private equity investors are
going to leave because of the company's low valuation and its IPO and she got no
backups when the board member is against her.
Along with the problem and condition, Bluewood will be facing some risk because of
its recent position such as:
•
High demand for chocolate can lead to supply shortage of Cocoa and hence can
lead to increase in prices.
III.
•
Maturity of debts can lead to liquidity crisis
•
Fluctuations in currency exchange
•
Increasing Debt ratio as private equity managers are ready to exit
•
Quality control regulations by the U.S FDA.
•
Contingency liability of $10million
•
Fair trade prices for cocoa can increase cost.
•
High dependency of Cocoa on weather, politics & highly competitive market.
•
Unable to hire or retain and develop key personnel
•
Risks related to consolidation of retail customers
RISK MATURITY ASSESSMENT
As risk is everywhere, each company regardless of the size of the company, should be
able to manage it through risk measurement before defining which one is a threat and
which one is opportunity. In addition to that, risk management assists any company to
arrange suitable strategies for better outcomes. end up in sustainable business. It is part
of everyone’ job related to the business, both internal and external. In internal
perspective, risk management focuses on the relationship between anyone in the
company, while external perspective focuses on the relationship between the company
and its environment. As such, risk management plays an important role in any business
no matter what position and or responsibilities the person has.
Figure 2. Risk Maturity Assessment using business & Hillson Risk Maturity Model
In Bluewood Chocolates, no one took part in risk management (figure 2), everybody
(both internal and external) was busy on how the company benefited them most. Its
volatile cash flows were not carefully managed even if the shareholder could not argue
owner’ opinion. It became one man show who never believed in others ' capability even
his second generation. Business order runs repetitively neglecting the past record and
strategic group analysis. They trust their product will satisfy the market and forget they
should satisfy the market by understanding them more, including price, product
variation, product value, etc.
IV.
ENTERPRISE RISK MANAGEMENT IMPLEMENTATION
The discipline of Risk Management is rapidly evolving; risk management practitioners
are increasingly shifting their focus from pure operational risks such as health and safety
or financial risks to a broader perspective of Enterprise Risk Management (ERM)
(Bugalla and Kallman, 2012). ERM is evolving and becoming more strategic. To
highlight strategic risk dimensions, executives should expect board members to ask and
be prepared to address more strategic risk questions when asked.
Figure 3 . The Framework of the ERM
Every enterprise either developed or developing is always at the risk of facing financial
risk or rather financial threats, which calls for the development of the risk management
framework. The risk management framework requires a dedicated chief risk officer who
will be able to oversee all the operations that will assist in preventing financial threats
and introducing strategies that are associated with avoiding financial risks.
Thus, there will be a certain condition which contain prospects and consequent to the
company when Bluewood decides not to change any of the recent management style
and culture:
● Liquidity risk will get converted into funding risk.
● Difficulty in meeting future uncertainties.
● Contingent liabilities may turn up into serious problems in the future.
● Lack of relevant purchasing strategies for cocoa and sugar can result in losses
as the prices are highly volatile.
● Downgrading of the rating of Blue Wood will increase the cost of capital.
Enterprise Risk Management advances hazard mindfulness and should process a
proactive organization of those dangers. In this manner, board individuals should be
engaged with overseeing hazard the executives strategies and help the executives
manage key hazard matters (Choo and Goh, 2015). In implementing this kind of
methods of Risk Management will meet a certain challenges from recent internal parties
nor managements such as:
● John Ferguson Senior was completely against implementation of ERM.
● As the new CFO is fairly new to her role, implementing ERM would require a
lot of explanation from her side.
● If not implemented successfully, implementing ERM would be taken up as
bureaucratic exercise.
● Requires considerable commitment of resources and is time-consuming.
● Will sometimes require significant changes to the way people work.
● Strong leadership and clear commitment from senior levels is essential.
● Reporting must be timely and insightful, in order to support proactive decision
making.
● Management of operational risk is often particularly difficult.
● Embedding ERM throughout the company is a major undertaking.
V.
PAPA MODELS
As an example of a company that has implemented enterprise risk management such
as LEGO, they use PAPA (Park, Adapt, Prepare & Act) to mitigate and analyse every
single risk they face. PAPA Model is:
● Park: The slow things that have a low probability of happening.
● Adapt: The slow things that we know will happen or are highly likely to
happen, we adapt to those trends.
● Prepare: The things that have a low probability of happening, but, if they do,
they materialize fast, we need to be prepared for this.
●
Act: the high-probability and fast-moving things that we need to act on now in
order to make sure the strategy will be relevant.
Figure 4. PAPA Model Proposed to Bluewood Chocolate
VI.
RECOMMENDATION
Bluewood Chocolates should take some action by:
•
Implementing Risk Management
•
Scheduling routine meeting for BOD & BOC to decide company decision
•
Building better relationship with shareholders
•
Implementing PAPA Models
•
Setting risk tolerance
•
Replacing Centralized Parenting Style into Strategic Planned Parenting Style
By taking some action there are a growth scheme to display the impact of the
following changes:
Figure 5. Bluewood Growth Scheme