Singapore-listed
Noble Group has just released its financial results for the first nine months of 2009, and it’s a doozy. Despite the global economic recession and lower commodity prices for much of the year, Asia’s largest diversified commodities trading company reported
US$472.4 million in net profit, up 7% from the same period last year, even though revenues fell 26% to US$21.6 billion.
One important enabler for Noble’s stellar results is its robust
risk management system, which helped the company pick up on signals that a crisis may be brewing. Did the company foresee what was going to happen? “We didn’t have a crystal ball,” says
Richard Elman, Noble Group’s founder and CEO, “but by the second quarter of 2008 we had a very strong feeling we were going to have significant reversals in the commodities market so we had a period of time during which we were able to mitigate our exposures.”
Did the risk management system alert you that a crisis was brewing?
We certainly had market intelligence and some of the leading indicators telling us there was going to be a reversal [in the commodities market]. There were, of course, consequences for our business, but we were very active in mitigating the effects. We weren’t burying our head in the sand, we were very proactive in mitigating our exposures.
How do you approach risk management at Noble?
We have a very pragmatic risk culture, structure and processes and a flexible organisation able to react to uncertainty. Risk management is very much part of our culture. It’s not something that can just be tasked to the risk management department. It has to be something that is part of the day-to-day culture of the organisation, so that when people are approaching events or situations, they’re considering the risks and making rational decisions.
We have a governance structure, driven from the board of directors and we have a risk management department which is independent, that is able to talk at any level in the organisation.
We have put robust measurement and reporting in place. We have a comprehensive
VaR [Value-at-Risk],
stress [testing] and
scenario analyses. But most importantly, we have people at the front end who are actually receptive to the culture of risk management within the organisation.
To us risk management is not just about quantitative techniques; it is as much about management of people on the ground and good communication within the organisation. If there’s something that’s a threat to the organisation or market intelligence that is out there which may indicate something may be changing, you need some method by which that information can be channelled and shared, and a method by which decisions can be taken very quickly.
But these things will only work if you have the processes and the people who are flexible enough to act . . .
We’ve kept a very flat management structure, which means that we have very good communication internally and we can make decisions very quickly. It doesn’t mean we don’t do due diligence. But it means that we avoid too many bureaucratic channels. We don’t tend to agonise over decisions.
RISK MANAGEMENT PROCESS
How does the risk committee operate?
One of the key things that really benefited us was the change in the format of the risk committee. The committee before had been set up for general oversight of risk management and limit approvals. Then we decided that it should start to become a management forum, and we made it more inclusive so we brought on board the majority of our heads of our business into the risk committee. That led to a higher level of ownership over the process.
2010, Mar 20 
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