Corporate Risk Management LSBM302: Abraaj Group Scandal Analysis

This case study analyzes the Abraaj Group scandal, a Dubai-based private equity firm, focusing on its corporate risk management failures. The analysis covers key risks such as economic, reputation, and financial risks, and evaluates the company's responses to these risks. It examines the application of risk management models like ISO 31000 and Enterprise Risk Management (ERM), highlighting gaps and shortfalls in Abraaj's approach. The study also explores relevant aspects of risk governance and regulatory risk, emphasizing the importance of these factors in preventing such scandals. The report concludes with a summary of the issues and recommendations for improved risk management practices. The case study highlights the importance of robust corporate risk management in the financial services industry.

CORPORATE RISK
MANAGEMENT
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TABLE OF CONTENT
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Assessment risk............................................................................................................................3
Risk exposure ..................................................................................................................................6
Evaluation of Abraaj's response to risk exposure .......................................................................6
Gaps and shortfalls in Arbaaj's approach ....................................................................................7
Relevant aspects of risk governance and regulatory risk ............................................................7
Conclusion ......................................................................................................................................8
Summary .....................................................................................................................................8
Recommendation.........................................................................................................................8
REFERENCES..............................................................................................................................10
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INTRODUCTION
Corporate risk management is a framework which is used by organizations to be able to
minimise their losses in the market. This is a practice which is used by organization's executive,
line managers and middle managers to make sure that the company is being able to operate
effectively. The Abraaj Group was founded on 2002 and is belonging to the financial services
which is having its headquarters in Dubai, UAE. The company is facing issues and is caught in
scandal which needs to be analysed and improved upon so that the organization will be able to
maintain their standards and reputation in the market which is going to be a great factor for a
long run. The executive of the company has been making false statements and letting out wrong
information about the company to be able to get in further investments in the company so that
the organization will be able to operate effectively in the market. The competition in the market
is high but there has to be effective actions which have to be taken in order to be able to operate
and maintain the customer base. Belonging from the financial service industry the company will
have to make sure that they are using the right methods and standards to be able to gain the trust
and loyalty of the customers. The report is going to consist of risk management and other models
to be able to maintain this factor for the benefit of the organization in the market.
MAIN BODY
Assessment risk
Key risks
There are a lot of risks which are involved in a financial business which can be a great
risk for the organization to have. Economic risk, reputation risk, competition risk, competition
risk, fraud risks, etc. are few of the measures which have to be taken by the business to be able to
operate effectively in the market (Katsos and AlKafaji, 2019).
Classification of risks
 Business risk
All business's executives in the market are ready to take risks so that there is going to be
maximum profits which can be received by the organization. This is done so that the sales and
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services of Abraaj Group is going to be higher. Communication in the organization is a very
important aspect which the company must have so that there is going to be higher sales.
 Non-business risk
Non business risks are not under the control of firm which is government policies and
other aspects which need to be followed so that there are going to be higher outcomes and
measures which can be taken.
 Financial risk
To get in stable economic or financial factor in Abraaj group the organization made sure
that they are having lack of communication and showed fake accounts to the stakeholders so that
they continue to invest in the organization (Hunter, Marriott and Oxfam, 2018).
IS0 31000 risk management model
IS0 31000 are the principles and standards which an organization must follow so that
there are going to be higher outlines which is present.
 Risk identification
Business must be able to identify the risks and Abraaj Group has been able to do so
because of the cases and reputation of the company which has been spoiling in the market.
 Risk analysis
Analysing this risk is essential only then there are going to be further measures which are
going to be selected and the business to be able to operate effectively (Jain, Singh and Parkash,
2020).
 Risk evaluation
Evaluation is going to discuss if the risk can be solved and right actions can be done in
order to make sure that the risks have reduced.
 Risk treatment
Abraaj Group has a method to be able to reduce the risk factors and positive impact of the
brand can be gained again in the market which is going to be a great factor for a long run.
 Establishing the context
There has to be a good plan and design of actions which has to be present and also be
implemented in the company so that there is going to be effective working and efficiency of the
company would be present in the market.
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 Monitoring and review
After the implementation it is essential for Abraaj Group to make sure that they are being
implemented and used effectively so that the end results are going to be effective (Kurniawanto,
Suhardjanto and Agustiningsih, 2017).
 Communication and consultation
After the analyses and implementation the organization must be able to have good
communication as well so that there are going to be higher outcomes which would be present.
Enterprise risk management (ERM)
It is important for the business to identify and use the right model to be able to operate
effectively in the market. The following report is going to discuss the stages which are involved
in this model.
 Coverage
Abraaj Group is operating in a very risky field which they created for themselves which
is that they did not communication, created fraud situations, etc (Banerjee and Gupta, 2017).
 Risk appetite
Abraaj Group was willing to take risks but now for the reputation of the company the
organization will have to reduce this factor so that there are going to be higher outcomes.
 Governance & Policies
The policies and governance laws are not going to be overseen by the company because
the brand image and customer base of the company is at risk (Koirala and et.al., 2020).
 Risk data & infrastructure
Risk data was not clear with Abraaj Group which is why the company could not handle
the scandal from taking place and make the company's reputation be at risk.
 Measurement, evaluation and communication
The company has to improve the risk factors so that the organization will be able to
operate effectively and efficiently in the market so that there are going to be higher
consequences.
 Control environment
Managing the risk situation is not a good experience of Abraaj Group which is why
taking more risks is not feasible for the organization.
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 Response
The company has taken actions of making sure that there is good communication which
is going to be effective for the overall development and working of the organization.
 Stress Testing
Risks are all interconnected in the organization which has to be managed so that there are
going to be higher operations and working that are present.
Risk exposure
Evaluation of Abraaj's response to risk exposure
As Abraaj group is a successful private equity firm but it got collapsed and got alligation
of fraud. Abraaj who is the owner of the company left no stone unturned to save their company,
but the company already had suffered from so many risks(Oxford, 2018). The first risk is
reputation, when the scandal came into limelight, it has fully vanished the reputation, name and
goodwill of the company. Abraaj tried to control this risk and create new plans & policies to earn
the respect and reputation again. Another risk was the employee turnover when the employees
got to know that something wrong is going on in the company so they started leaving the Abraaj
group, so it was another challenge for Abraaj that, they have to gain the trust of its own
employees again.
As employees are the asset of the company and if they start leaving the company can't
process their work further. Apart from this, the investors and stakeholders are started loosing
interest in the company as they were not getting any proper information from the company, lack
of communication was the biggest loop hall in the entire case, because Abraaj was not able to
show them any financial document of the company like how much profit is being earned by the
company, where they have invested their money, so in the absence of clear communication,
investors started withdrawing their money back from the Abraaj group. Abraaj try to make them
understand about the situation of the company but got failed.
Gaps and shortfalls in Arbaaj's approach
In this case there are lot of gaps and shortfalls have been found in Abraaj's approach as
whatever plan and policies they have made all were got failed. Investors, employees lost their
interest in the company.
FAIR model of risk
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FAIR stands for factor analysis of information risk, the main objective of this model is to
identify and monetise the risk of any business(Salas and et.al, 2017). This model divides the risk
in different blocks so that the business can easily identify and make plans and strategies to
overcome such risk.
In the case of Abraaj group, lack of communication with investors, stakeholders and
employees was the biggest drawback of the company as the stakeholders ware thinking that the
company is going in loss and their entire money will get vanished, therefore they started taking
back their money from the company. With the help of FAIR model company can find out what
are the major issues going on in their company and how to resolve them.
360 degree risk management model
This model is helpful in building, managing, and operating people in the company and try
to meet their needs by different policies, procedures and methodologies(Seznec and et.al, 2018).
As the name suggest, according to this model, company should think about their stakeholders
because they are the person who have invested their money in the company so it is the
responsibilities of the company to satisfy them by providing them all the relevant information
which are necessary for them to know.
However, this model focuses on the policies of the government as well, it is the duty of
the company to follow all the rules, regulations and business standard so the company don't have
to lose its reputation.
Relevant aspects of risk governance and regulatory risk
Governance, risk and regulatory protects the company or organisation and help them to
manage the risk with the help of rules, regulations and internal audit. It also assists the company
to mitigate the risk and identify the future opportunity so that the business can earn immense
growth and profit(Espinoza, 2020). Basically it refers to a strategy through which the company
can manage its risk and compliance with the help of risk governance.
But in this case the company was started making defaults and didn't follow the risk
governance and regulatory therefore, the rumours were going on within the management of the
company that this company is going to face huge loss and maybe it can get insolvent. So GRC
plays a very important role in the company. GRC helps the company to manage different
departments of the company as well whether it it Finance, HR , IT or any other, when all the
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department perform their job appropriately then the company can make profit. But Abraaj group
was not able to follow the GRC therefore the company has to face big scandal as the
management executives were not following the norms and in result company got bankrupt.
Conclusion
Summary
Abraaj group has been charged with the obligation that the company is deceiving
stakeholders and investors apart from this, the company is misusing the investors money and
funds. Now the question arises why and how this scandal take place, so the entire problem
started in February 2018, where Abraaj get charged that the fund of the company has been mi
sussed but the executives of Abraaj denied of doing any wrong activity with the fund and denied
bribing any politician, after knowing this company started making defaults in the repayment of
loans after this the new came into limelight that something wrong is going on in the company
and investors started withdrawing the money from the company. From the perspective of risk,
the chief operating officer and fund administer also found corrupt in this case as they can make
efforts to resolve the issue of the company.
Recommendation
To stop such scandals in the near future, the internal governance and the management of
the company should communicate with the investors and stakeholders of the company, whether
it is on quarterly, half yearly or annual basis to that at least investors must have an idea about
what is going in the company apart from these employees also play a critical role in the growth
of the company so the top management must communicate with the employees about the plans,
policies and strategies which the company is following and also take suggestions from them,
besides this company must follow the rules, regulations and norms made by the
government(Beerel, 2019).
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REFERENCES
Books and Journals
Banerjee, R. and Gupta, K., 2017. The effects of environmental sustainability and R&D on
corporate risk-taking: International evidence. Energy Economics. 65. pp.1-15.
Beerel, A., 2019. Ethical Leadership and Global Capitalism: A Guide to Good Practice.
Routledge.
Hunter, B.M., Marriott, A. and Oxfam, G.B., 2018. Development Finance Institutions: The (in)
coherence of their investments in private healthcare companies. The Changing Faces of
Development Aid and Cooperation: Encouraging Global Justice or Buttressing
Inequalities?. p.33.
Jain, S., Singh, D. and Parkash, P., 2020. Understanding The Impact of Corporate
Communication Initiatives on Consumers in Crisis Management among Consumer
Oriented Industries. European Journal of Molecular & Clinical Medicine. 7(6).
pp.2892-2906.
Katsos, J.E. and AlKafaji, Y., 2019. Business in war zones: how companies promote peace in
Iraq. Journal of Business Ethics. 155(1). pp.41-56.
Koirala, S and et.al., 2020. Corporate governance reform and risk-taking: Evidence from a quasi-
natural experiment in an emerging market. Journal of Corporate Finance. 61. p.101396.
Kurniawanto, H., Suhardjanto, D. and Agustiningsih, S.W., 2017. Corporate governance and
corporate risk disclosure: Empirical evidence of non-financial companies listed in
Indonesia stock exchange. Review of Integrative Business and Economics
Research. 6(4). p.255.
Oxford Analytica, 2018. Downfall of the UAE’s Abraaj could rebound on Riyadh. Emerald
Expert Briefings, (oxan-es).
Salas and et.al, 2017. An analysis of the growth, diversity and potential of a young investment
strategy in an emerging market1. Principles and Practice of Impact Investing: A
Catalytic Revolution, p.4.
Seznec and et.al, 2018. The Financial Markets of the Arab Gulf: Power, Politics and Money.
Routledge.
Online
Espinoza, J., 2020 Abraaj scandal a ‘wake-up call’ for advisory industry[Online]. Available
through: <https://www.ft.com/content/c31e6040-78b0-11e9-b0ec-7dff87b9a4a2>
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