Managing Enterprise Risk: Insights From Mars Inc.

Managing risk for one of the world’s largest private manufacturing companies isn’t easy, especially considering the volatility of today’s environment.

Speaking at Aon’s Advanced Risk Conference 2018 in Melbourne, Mars Inc’s global director for risk management Chris de Wolfe described their sophisticated approach to risk management and the solutions they use to mitigate risk.

Mars Incorporated might be best known for its confectionary products, but the company actually makes more revenue from pet nutrition. And while it is also known as being a manufacturer, its largest single employee group is in its veterinary division, which is a services business.

That unusual business mix creates some interesting scenarios when it comes to risk management. So it is not surprising then that the company has also developed its own distinctive stance when it comes to risk mitigation.
Founded as a family company in Tacoma, Washington in 1911, today Mars employs more than 110,000 people in over 2500 locations worldwide and has sales in the range of US$35 billion. And it still remains in private hands.

de Wolfe described his company’s risk strategy as focusing on risk reduction over transfer, starting with preventative measures, followed by business continuity processes, and then transferring the rest.

“We insure what’s left.” de Wolfe said. “For us product on shelf is more important than getting money back from an insurance claim.”

So while the company has approximately US$30 billion in insured assets around the world, this approach means Mars is spending less on insurance today than it did five years ago.

Mars updates its risk register annually to understand how the various risks in the organisations connect, and shares what it learns across divisions.  When it comes to assessing how much risk is retained and transferred, the company uses Monte Carlo simulations to determine the probability of where losses might occur. This helps it determine how much risk is kept internally via a captive insurance company versus what is transferred to commercial insurance markets and the subsequent limits for insurance being purchased.

This level of scrutiny has led to savings for Mars by highlighting opportunities to unbundle some professional lines of insurance and unlock savings that were not possible using integrated policies.

de Wolfe said the company is also being courted by alternative capital sources to discuss alternative ways of buying insurance capital, offering products such as parametric weather solutions, insurance-linked securities and catastrophe bonds.

Crucial to this strategy has been an internal education campaign based around the hashtag #wegotthis, which is promoted through Mars’ Yammer-based communication hub and on company merchandise. de Wolfe says stickers featuring #wegotthis are commonplace throughout the company, including on the CEO’s computer.

“It makes risk more front of mind than back of mind,” de Wolfe said. “Our job as risk managers is to make sure they’ve at least thought about it, rather than thinking about it the day afterwards.”

This approach has also means risk managers have greater involvement in business strategy and development. de Wolfe and his team work with select business units to run operational risk assessments, examining business plans and asking what could go wrong and what sort of mitigation should be put in place.

“As risk managers, it takes us out of our comfort zone and our area of expertise, but what it does is it absolutely adds value to the business,” de Wolfe said.

Risk management is therefore deeply involved in strategic activities such as acquisitions and launches into new markets.

“If you want to get more involved and engaged with the more senior people in your business, that is the way to do it,” he said.

This active approach to risk also reflects Mars’ commitment to the concept of mutuality, which is based on the idea that a mutual benefit is a shared benefit, and a shared benefit will endure.

This has assisted the company in areas such as supply chain management, where it has helped Mars navigate potential emerging risks.

“Everyone working with our supply chain should earn sufficient income to maintain a decent standard of living,” de Wolfe said. “If we err away from that commitment, it is going to come back to us very quickly. Not complying with that becomes whole new risk to the business.”