UGG & reputation/governance erm practice

The UGG case illustrates a key ERM principle:

A. Firms should only manage risks that have established insurance markets
B. Firms benefit from integrating pure and financial risks into a unified framework
C. Weather risk is too unpredictable to analyze
D. Hedging commodity prices eliminates most earnings volatility

B. Firms benefit from integrating pure and financial risks into a unified framework

UGG’s earnings volatility—despite hedging currency and commodity prices—demonstrates that:

A. Hedging programs are ineffective
B. Operational risks can dominate financial risks
C. Insurance should replace all hedging
D. Weather risk is uninsurable

B. Operational risks can dominate financial risks

The case shows that weather‑driven crop yields affect UGG’s grain volume with a one‑year lag. This implies that:

A. UGG faces a predictable, model‑driven exposure that can be quantified
B. Weather risk is random and cannot be forecast
C. Grain volume is unrelated to crop yields
D. UGG should stop providing crop services

A. UGG faces a predictable, model‑driven exposure that can be quantified

The regression analysis linking weather to crop yields demonstrates which ERM concept?

A. Risk cannot be measured
B. Firms should rely only on qualitative judgment
C. Quantitative modeling can reveal hidden drivers of earnings volatility
D. Weather derivatives are always superior to insurance

C. Quantitative modeling can reveal hidden drivers of earnings volatility

UGG’s consideration of weather derivatives vs. insurance reflects which strategic risk management question?

A. Should the firm eliminate all risk?
B. Should the firm retain or transfer a major unmanaged risk?
C. Should the firm stop operating in volatile markets?
D. Should the firm hedge only currency risk?

B. Should the firm retain or transfer a major unmanaged risk?

The case shows that UGG’s board and analysts were sensitive to earnings volatility. This implies that:

A. Volatility has no effect on firm value
B. Reducing volatility can improve credit ratings and investor perception
C. Only large firms need ERM
D. Weather risk is irrelevant to capital markets

B. Reducing volatility can improve credit ratings and investor perception

The identification of 47 risks, narrowed to six for quantification, illustrates which ERM principle?

A. Firms should only analyze risks that can be insured
B. Risk identification must be broad, but prioritization must be focused
C. All risks should be treated equally
D. Quantification is unnecessary

B. Risk identification must be broad, but prioritization must be focused

The case shows that UGG historically managed pure and financial risks separately. ERM suggests that:

A. Separation improves efficiency
B. Integration allows firms to understand portfolio‑wide interactions
C. Pure risks should always be ignored
D. Financial risks are more important than operational risks

B. Integration allows firms to understand portfolio‑wide interactions

The weather‑yield‑volume relationship implies that:

A. Weather risk is diversifiable for UGG
B. Weather risk is systematic and directly tied to core business performance
C. Weather risk only affects farmers, not grain handlers
D. Weather risk cannot be modeled

B. Weather risk is systematic and directly tied to core business performance

The case’s focus on weather risk transfer options (derivatives vs. insurance) highlights which ERM insight?

A. Risk transfer instruments should be chosen based on how well they align with the firm’s exposure
B. Derivatives are always cheaper than insurance
C. Insurance is always superior to derivatives
D. Firms should avoid innovative risk transfer products

A. Risk transfer instruments should be chosen based on how well they align with the firm’s exposure

The viral arena clip primarily creates which type of risk for the board in the first 72 hours?

A. Long‑term strategic risk
B. Immediate reputational and governance risk
C. Only legal risk once lawsuits are filed
D. Only operational risk because two leaders were off‑site

B. Immediate reputational and governance risk

Why is the involvement of the CHRO (SVP, People & Culture) especially damaging from a governance perspective?

A. HR leaders are expected to avoid public events
B. HR oversees fairness, investigations, and conflicts policies
C. HR has no influence on risk culture
D. HR is not considered part of senior leadership

B. HR oversees fairness, investigations, and conflicts policies

The board’s decision must consider “risk velocity.” In this case, velocity is high because:

A. The executives deny wrongdoing
B. The video spread instantly and stakeholders reacted within hours
C. The company has strong crisis templates
D. The event occurred on a weekend

B. The video spread instantly and stakeholders reacted within hours

The procurement email from the company’s largest customer implies which ERM insight?

A. Customers rarely care about leadership behavior
B. Reputational events can quickly become commercial and contractual risks
C. Supplier codes of conduct do not apply to executives
D. Customers cannot influence internal investigations

B. Reputational events can quickly become commercial and contractual risks

nternal employee reactions highlight which risk most clearly?

A. Strategic risk
B. Operational risk due to unclear reporting lines and escalation paths
C. Market risk
D. Credit risk

B. Operational risk due to unclear reporting lines and escalation paths

Why is “cut ties immediately” risky from a legal/compliance standpoint?

A. It signals weakness to competitors
B. It may violate due‑process expectations and create wrongful‑termination exposure
C. It guarantees negative press
D. It prevents the board from issuing a statement

B. It may violate due‑process expectations and create wrongful‑termination exposure

Why is “wait and see” risky from a reputational standpoint?

A. It suggests the board is micromanaging
B. It may appear the company tolerates conflicts of interest or unequal power dynamics
C. It reduces the workload for the CEO
D. It improves employee morale

B. It may appear the company tolerates conflicts of interest or unequal power dynamics

The board’s decision must consider tone at the top. Which statement best reflects this?

A. Senior leaders’ private lives are irrelevant to risk culture
B. Visible misconduct by senior leaders undermines trust in HR processes and fairness
C. Tone at the top only applies to financial reporting
D. Tone at the top is set by middle managers, not executives

B. Visible misconduct by senior leaders undermines trust in HR processes and fairness

The involvement of politicians and advocacy groups demonstrates which ERM concept?

A. Only shareholders matter in reputational crises
B. External stakeholders can escalate issues even without legal action
C. Political reactions are irrelevant unless a law is broken
D. Advocacy groups cannot influence corporate governance

B. External stakeholders can escalate issues even without legal action

The board’s core decision—cut ties, retain, or hybrid—should be based primarily on:

A. Personal opinions of directors
B. The executives’ popularity inside the company
C. Stakeholder expectations, risk severity, and the company’s governance standards
D. Whether the video remains online

C. Stakeholder expectations, risk severity, and the company’s governance standards