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Honeywell Essay

9944 words - 40 pages

Harvard Business School

9-200-036
Rev. July 12, 2000

Honeywell, Inc. and Integrated Risk Management

In one week, on July 10, 1997, the Finance Committee members of Honeywell Inc.’s board of
directors would vote on whether to proceed with a new risk management program. For the past two
years, members of Honeywell’s Treasury Management Team, in conjunction with insurance
specialists J&H Marsh & McLennan (now Marsh Inc.), auditor Deloitte & Touche, and later with
insurance underwriter American International Group (AIG) had worked to create a new, more costefficient method for managing some of Honeywell’s risks. Their proposal, the first of its kind,
provided combined protection ...view middle of the document...

Exhibit 1 and the Appendix contain Honeywell’s consolidated financial statements
and excerpts from Management’s 1996 Discussion and Analysis of Operations, which together
provide recent detail on both corporate and business-unit level performance. Exhibits 2 and 3
provide comparative operating and stock price performance measures for Honeywell and its
competitors, and Exhibit 4 shows Honeywell’s volatility of equity relative to the S&P 500 from 19851996.
Research Associate Jonathan Barnett and Professor Lisa Meulbroek prepared this case as the basis for class discussion rather
than to illustrate either effective or ineffective handling of an administrative situation.
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I. Introduction

200-036

Honeywell, Inc. and Integrated Risk Management

III. Honeywell’s Risk Management Review
Honeywell’s managers reviewed the firm’s existing financial practices, determining that
change was needed in order to support the firm’s operational goals. As Honeywell’s Treasurer Paul
Saleh explained, “We did not have a whole set of strategies in place that identified exactly what we
were trying to do, in dividends, in debt management, in risk management and so on.”1

Exhibit 5 shows a number of risks that Honeywell concurrently managed in order to achieve
its financial objectives. Honeywell’s risk management activities were dispersed throughout the firm
(see Table A). Active hedging or insuring of risks occurred only for currency, interest rate, liquidity
risk, credit risk, pension fund, and traditionally-insured risks. Other risks were managed
operationally.
Table A
Department with Oversight Responsibility

Traditionally-Insured (i.e., Hazard) Risksa
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Type of Risk

Treasury—Insurance Risk Management unit

Currency...

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