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vol. XVII no. 3 RISKS ON THE HOME FRONT As a defense trial lawyer for 25 years representing Fortune 500 companies in national litigation, David Whatley learned something new every day. Being vice president of risk management since 2000 at The Home Depot is no different, Whatley says. Whether he's following the recent election in the Ukraine for possible political risks to The Home Depot's global sourcing or understanding the implications of the tsunami in South Asia on the supply chain, Whatley is getting an education in risk.
During that education, he's learned a few things. "The essence of risk management is to build risk awareness at all levels and integrate it within the corporate culture," he says. "We want to get to the level where risk management adds value without adding tasks or additional work. When people are practicing it without knowing it, that is ideal."
Whatley in turn shares those lessons with his colleagues and staff, seeing one of his roles as teacher. In teaching what is often common sense, he seeks to reorient thinking away from specific triggers to more generalized approaches. For example, when approached to develop a contingency plan for The Home Depot if North Korea invaded the South, he rephrased the question: What happens if our South Korea sourcing partners are unavailable? This led to other questions: How dependent are we on this source? What are the ways to reduce this risk? What are the contingency plans? Are there other locations that can provide this sourcing material? "My job is to drive the process to have the experts in those areas figure out the answers," says Whatley. Those areas include strategic planning, mergers and acquisitions, human resources, finance and auditing, information systems, and relationships with third-party vendors. As the second largest importer of containers into the United States, The Home Depot is no stranger to risks to its supply chain. The Homeland Security Act, developed in response to 9/11, presents only one obstacle to global sourcing. Others come from natural disasters or work stoppages, such as the longshoremen's strike on the West Coast. Expansion overseas brings another set of risks. The Home Depot now has its sights on Asia after a tremendously successful move into Canada, where it just opened its 100th store. In Mexico, the company is now the largest home improvement chain, after just three years in the country. The risk strategies remain the same, whether at home or abroad. "If you can avoid it - don't get into an activity at all," says Whatley. "Transfer it through contractual indemnity or insurance. Balance it, which happens more in the financial services area with hedging. Or you can manage and mitigate it to an appropriate level through processes and procedures. Generally, we use this last strategy to integrate risk management into our normal process and procedure." Risk is not a bad word in Whatley's vocabulary. He defines it as any impediment to achieving a business goal, whether negative (extra cost caused by an event that reduces the bottom line) or positive (the failure to maximize your capitalization of a business opportunity, which reduces the top line). However, "the biggest risk is taking no risk. If you are not taking a risk, you'll get no reward. The idea is to take a conscious risk."
In embracing an enterprise risk management approach, The Home Depot has evolved from an entrepreneurial business model to one more in keeping with a Fortune 13 company with standardized processes and procedures supported by accountability and compliance programs. Whatley sees risk management not only as his department's job but also that of everyone in the company - driven from the top. "The risk tolerance of the company is determined by our CEO and our Board of Directors. Managing our businesses within this risk level is inherent in the way we run the company." |
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