In 2009, Hormel Foods formalized its Enterprise Risk Management (ERM) initiative to examine and manage potential risks to the company. The ERM is supported by the Board of Directors and continues to evolve at Hormel Foods. ERM risk teams meet throughout the year to identify, measure and mitigate key risks across the company. The ERM teams reassess risks to document changes to risk exposures and look for new and emerging risks. The teams then provide regular updates to senior management.
The ERM teams have developed strategic plans to mitigate the risks identified. While many of the risks involve proprietary information, we can share information on those that have been reported in our Annual Report, along with certain steps we have taken in response.
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;
- Potential fluctuation in market demand for our products 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 that could 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, that could expose 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; and
- Deterioration of labor relations, which could adversely affect the approximately 5,500 of 19,500 Hormel Foods employees who are represented by labor unions.
Activities to mitigate against risks:
- Global Food Safety Initiative (GFSI) audit required of all suppliers including those with preferred supplier status;
- Annual audits of joint venture manufacturing operations;
- Validation of co-packer food safety systems through annual Hormel Foods quality assurance audits of co-packers;
- Implementation of technology back-up systems to ensure operations are consistently connected;
- Management of company expense volatility through hedging;
- Implementation of the Mutual Agreement between Government and Employers (IMAGE) program for human resources and expansion of common human resources policies across all businesses, including subsidiaries;
- Constant monitoring of animal diseases nationwide; continued implementation of bio-security measures at facilities;
- Enhanced quality management system at company-owned farms; and
- Promotion of innovation through talent management; leadership vision and direction; and risk tolerance and reaction.