Corporate Risk Management Analysis: The Abraaj Group Case Study

This report provides an in-depth analysis of the Abraaj Group's corporate risk management practices. It begins with an introduction to corporate risk management, defining its importance in minimizing financial losses. The main body delves into risk assessment, covering consumer privacy protection, technology risk, third-party risk, fraud and misconduct risk, cyber risk, compliance risk, and crisis management risk. The report then explores risk response strategies, using the Bow Tie framework to illustrate how the Abraaj Group could have effectively managed its risks, particularly those associated with third-party involvement. The analysis highlights the consequences of poor risk management, including damage to brand value, potential loss of licenses, and financial penalties. The conclusion emphasizes the importance of disclosing financial instability, providing stakeholders with complete information, and adhering to legal and ethical codes. It offers recommendations for the Abraaj Group to minimize future risks, such as disclosing financial information, ensuring transparency, and securing technological platforms. The report underscores the critical role of risk management in a dynamic business environment.

Corporate Risk Management
1

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Assessment of risk.......................................................................................................................3
Risk response..............................................................................................................................5
CONCLUSION................................................................................................................................7
REFERENCES ...............................................................................................................................9
2

INTRODUCTION
Corporate risk management is defining as the effective method used by different
organisations with the motive to minimize its financial losses. There is various type of risks
which are faced by the organisation in this changing world (What Is Corporate Risk
Management?, Bianca, 2019). As due to advancement in technology and due to increasing
competition in marketplace the organisations need to focus on innovation and take risk in order
to attract customers and able to maintain its position in marketplace. This report is based on
Abraaj group. The company was established in year 2002 by Pakistani business man Arif Naqvi.
The company is dealing in equity and is operating in six continents that are Africa, Asia, Latin
American, Middle east and Turkey. The company has developed a purpose built approach for
investing in growth markets. The Dubai financial services authority has identified the fraud and
have fined two Abraaj group companies a combined $315 million for deceiving investors and
misappropriating funds. Moreover, in order to fill the gap, the company has borrowed amount of
$1 billion to fund asset purchases and bear its credit. It is one of the most influential emerging
market buy out company operating in marketplace from last 16 years (About case of Abraaj
group, 2021). The company is having assets under management of amount more than $14 billion
but company equity story got collapsed. The U.S prosecutors has filled case against company
that their financial position is not good from year 2014 and they are lying about it. Moreover,
company is also under the charge of misappropriation of millions of dollars of one of the investor
who has invested in Madoffesque fashion.
MAIN BODY
Assessment of risk
In context of Abraaj group they are dealing in equity hence are involve in high risk which are as
follow-
Consumer privacy protection- The consumer privacy act has been passed in year 2020
where it has become compulsory for companies dealing in equity are required to prepare
compliance according to the new act (The consumer-data opportunity and the privacy imperative
(Anant, Donchak, Kaplan, Soller, 2019). According to act there are three aspects which company
need to consider that are discloser of the personal information which is collected and its usage,
providing choice to consumers for opt out of the sale and regarding sharing of their information
3

and ability of consumers to request deletion of the data. Hence it become difficult and
complicated for Abraaj group to carry its business operations in effective manner.
Technology risk- In this growing and changing environment where everyone is
dependent on technology therefore, managing technology is difficult task. In context of Abraaj
group, changing technology and use of advance technology is acting as opportunity and provide
value to business and helps in the growth and development of the company (About analysis of
risk to Abraaj group, 2021). Due to use of advance technology many illegal practices are taking
place hence it is important for company to change its technology risk management practices.
Third party risk- Abraaj group is able to established its name in marketplace and is
expanding its investment and for that it is engaging third parties for performing and managing its
services. There is great risk involved in carrying business operations with the help of third party
because they do not carry activities in accordance to company laws and regulations and their
actions may damage the reputation of firm and investments (About analysis of risk to Abraaj
group, 2021). The involvement of third party led to outsourcing work but responsibility belong
to the company that is if anything goes wrong then company have to barrier it even though the
fault is of third party. Third party transactions are important for various accounting policies and
occur in a variety of situations. Importantly, the third party is not affiliated with the other two
participants in the transaction.
Fraud and misconduct risk- There is high risk faced by the Abraaj group in dealing with
its clients and with the help of third party. The chances of fraud and misconduct are high and the
chances of risk are high in holding in foreign market (About analysis of risk to Abraaj group,
2021). In foreign market the fraud, misconducts and corruption are considering as the part of
culture. There is transparency in doing business activities with limited partners and in
transparency the chances of fraud or misconduct are quite high.
Cyber Risk- Abraaj group is facing issues and always have threat from cyber threats that
is from employees, third parties and from other outsiders. Due to increase in expenses the
cybercrime is increasing that is attacks are increasing due to which company is having high risk
and need to take effective measures in order to deal with this problem. As company is involved
in money related activities due to which changes of cybercrime are high and company need to
faced many difficulties.
4

Compliance risk- The various laws and regulations formulated by the government has
major impact on the performance and brand value of the company (What Is Compliance Risk
Management? Kelly, 2019). In context of Abraaj group, the company is operating in different
countries and have to follow the rules and regulations of that country which is difficult task.
Moreover, due to nay new law implementation of new law their business practices might be
stopped for restricted by government leading to many problems. Hence there is high risk
involved in carrying business in other countries. These are penalties and fines for violations or
noncompliance with laws, government regulations, internal policies and business standards. To
ensure that companies are consistent with these regulations, they must have adequate audit
monitoring and oversight functions.
Crisis Management risk- Abraaj group need to take measures in order to deal with the
crisis as they are uncertain and has major impact on the performance and reputation of the
company (About analysis of risk to Abraaj group, 2021). The company need to take measures in
order to deal effectively with crises and have to focus on its management. The company must
have crisis management team which can handle the difficult situations in effective management.
Risk response
Abraaj group is facing many problems and have to deal with challenging situation which
involves high risk. The company need to take effective measures in order to deal with the
problems and able to effectively manage the risk (About case of Abraaj group, 2021). With the
use of Bow tie framework, the company would effectively focus on the risk management. The
bow tie is an effective method which is used in risk management that is it is a visual way used by
the organisation in understanding the impact of risk or hazard so that effective measures can be
taken to control it. One of the benefit which company would able to get by the use of this method
is that it this process is easy to understand and anyone can effectively use it and is not a time
consuming process.
5

The event is third party risk that is company while carrying its operations and activities with the
help of third party involves high risk. In carrying business operations with the help of third party
involves high risk. The major thread to the company due to involvement of third party in the
business is it will not perform activities and operations in accordance to method and techniques
use by the company (About risk response by Abraaj group, 2021). If there any difficulty or
wrong practice take place, then the company is responsible for that even though the fault is of
third party. Moreover, it may also lead to loss of client as they are not able to get quality services
and company not able to stand on the needs and desires of clients. This has major impact on the
profitability of company as company is not able to meet the stands of clients they will not prefer
it and will look for substitutes. As company is dealing in different counties and the illegal
practices carried by third party in delivering services to various clients have impact on the over
operations of business. If the third party carry operations and activities in improver manner and if
they are caught by government then for that also the company will be responsible and have to
spend more of its money in dealing with the problems. Moreover, another risk which take place
due to involvement of third party is that company many losses the trust of its potential
customers. It will provide scope and opportunity to other competitors where work in order to
gain the trust of customers and would able to provide effective services. The other competitors
would able to gain the competitive advantage and it will affect the profitability of company and
6

lead to loss of clients. The consequences which company have to faced due to involvement of
third party in business is that it will have direct impact on the brad value and reputation of the
firm. It will lead to negative impact on the goodwill of the company due to which there is loss of
customers (About risk response by Abraaj group, 2021). As company is providing services in
different countries it many also lead to cancel of licence that is government would not allow the
company to operate in their country. Moreover, due to these practices where activities are not
performed in the desired manner, the government may charge high fines which lead to loss of
profit. As building trust and reputation is the difficult and time consuming process and such
activities has negative impact on the performance of company.
CONCLUSION
In accordance to the stated case study, it is analysed that Abraaj Group scandal and collapse
happened because the organisation did not disclose the financial instability in the financial
statements of the company and the company was continue conducting the business functions. As
it the legal and ethical responsibility of the business to disclose all the information of business
transaction in the financial statement of the company. The company breached legal responsibility
and continued to cheat its stakeholders. It became the major reason of the company crashing into
huge losses. The recommendations for Abraaj Group which could minimise the occurrence of
such event in the future are stated as:
 According to Companies Act, 2013 it is mandatory for any business to disclose
information of business transaction in the financial statement. The company should have
stated the information of financial crisis in the financial statement of the company.
 The company should render complete information to the stakeholder about business
activities and transaction. It should not promote unfair means of business practices to
conduct business activities. The company should not have given fake information to
generate profit.
 The company should have followed the legal and ethical code of conducting business
activities. It should prepare profit and loss and balance sheet reflecting all the major
business transactions.
 While dealing in business transaction in different countries, it should provide all the
necessary information to the third party holders, so that third party deals with stakeholder
efficiently. The third party should be held responsible for any unfair practice conducted
7

so that third party feels responsible and liable for conducts fair means of business
activities.
 Abraaj Group should secure its sources while using technological platforms. As with
technologically advancement, different cyber threats are being increasing. The company
should secure its platforms from different sources with malicious intent.
Hence, risk management play important role in the growth and development of the company. As
in this dynamic environment the uncertainness may take place at any point so organisation must
be ready in advance financially in order to deal with them. Moreover, technology is playing
significant role as business need to focus on new technology in order to gain competitive
advantage.
8

REFERENCES
Online:
About analysis of risk to Abraaj group, 2021 [online] available through: < https://insights.s-
rminform.com/due-diligence-and-governance-structures-abraaj/ >
About case of Abraaj group, 2021 [online] available through:<
http://sellsidehandbook.com/2019/11/20/the-abraaj-group-scandal/>
About risk response by Abraaj group, 2021 [online] available through:<
https://www.ft.com/content/79f23dbe-683a-11e9-a79d-04f350474d62 >
Nicolas, S. and May, P.V., 2017. Building an effective compliance risk assessment programme
for a financial institution. Journal of Securities Operations & Custody, 9(3), pp.215-224.
Shy, O. and Stenbacka, R., 2016. Customer privacy and competition. Journal of Economics &
Management Strategy, 25(3), pp.539-562.
Bianca, A., 2019. What Is Corporate Risk Management? [online] available through:<
https://bizfluent.com/info-7804647-corporate-risk-management.html>
Kelly, M., 2019. What Is Compliance Risk Management? [online] available through:<
https://www.ganintegrity.com/blog/what-is-compliance-risk-management/>
Anant, V., Donchak, l., Kaplan. J. and Soller. H., 2019. The consumer-data opportunity and the
privacy imperative. [online] available through:<
https://www.ganintegrity.com/blog/what-is-compliance-risk-management/>
9