Hormel Foods formalized its Enterprise Risk Management (ERM) initiative more than 18 months ago to examine and manage potential risks to the company. Working together with the internal audit committee, the ERM steering committee discussed potential risk exposures with executive management and internal teams. The ERM is supported by the Board of Directors and has identified risks and strategic plans to mitigate against these risks. While many of the risks involve proprietary information, we can share overall risks that have been reported in our Annual Report, as well as certain steps we have taken to respond.
As disclosed in our Annual Report, we are aware of the following risks to our business:
Food industry risks, including food spoilage; food contamination caused by disease-producing organisms and pathogens, such as Listeria monocytogenes; salmonella and generic E. coli; food allergens; nutritional and health-related concerns; federal, state and local food processing controls; consumer product liability claims; product tampering; and the possible unavailability and/or expense of liability insurance.
Economic conditions, which could compromise the financial stability of our customers and suppliers and result in additional bad debts or declined value of our investments, including equity and trading securities.
Fluctuations in commodity prices, including of prices of pork, poultry and feed ingredients, which could harm the company’s earnings.
Outbreaks of disease among livestock and poultry flocks that could potentially harm the company’s revenues and operating margins.
Market demand for our products could fluctuate due to competition from other food processing companies, including price, product quality, brand identification, breadth of product line and customer service.
Acquisitions in recent years carry risks to our operations, such as the diversion of management’s attention from other business concerns and the potential loss of key employees.
General risks of litigation.
Government regulation, past, present and future, exposes the company to potential sanctions and compliance costs.
Environmental proceedings and investigations.
Foreign operations risks, including fluctuations in currency values, foreign currency exchange controls, compliance with foreign laws and other economic or political uncertainties.
Deterioration of labor relations because approximately 5,500 of 19,500 Hormel Foods employees are represented by labor unions.
Activities to mitigate against risks:
Required Global Food Safety Initiative (GFSI) audit of suppliers and preferred supplier status by end of 2010.
Annual audits of joint venture manufacturing operations.
Validate co-packer food safety systems through annual Hormel Foods quality assurance audits of co-packers.
Implemented technology back-up systems to ensure operations are consistently connected.
Managing volatility of company expenses through hedging.
Implemented IMAGE for human resources and working on common HR policies across all businesses, including subsidiaries.
Constant monitoring of animal diseases around the nation; continued implementation of bio-security measures at facilities.
Enhanced quality management system at company-owned farms.
- Promoted innovation through: talent management; leadership vision and direction; and risk tolerance and reaction.