Like most CFOs, Paul Reilly is not prone to exaggeration. The finance chief at Melville, New York–based Arrow Electronics Inc., Reilly is by nature a pragmatist — a level-headed, by-the-numbers pragmatist. So when he tells you flat out that, "It's a growing problem; people are not focused on it," you take note.

What people are not focused on, according to Reilly, is the massive heap of old computers and motherboards piling up in landfills across the planet — the toxic detritus of the Digital Age. It's a mounting problem — literally — and one that's only now being addressed by government regulators and corporate officers.

But as big a concern as E-waste is, it is still only a small byte in the larger risk grid confronting business managers these days. Indeed, Reilly's statement about the looming green peril could just as easily be applied to a host of regulatory red flags and business black holes roiling corporations. And while companies have always faced risks, many finance managers say they can't remember dealing with so many.

Research seems to back this up. In a recent survey of executives (mostly CFOs) conducted by consultancy Protiviti, half of the respondents reported that the overall risk level for their employers has gone up substantially in the past two years. What's more, 57 percent of those executives said their employers are not particularly good at identifying risks.

That's a high percentage, and one that suggests that risk managers are routinely engaged in a corporate version of Wac-A-Mole. Just as one danger is smacked down, another one pops up. And while no single magazine article could ever chart all the hazards facing corporate managers, the eight risks detailed in the following pages cover a wide range of concerns. As such, they involve a number of key company functions, including accounting, finance, and insurance. Finance chiefs may be aware of a couple of the risks, but it's doubtful any CFO is prepared for all of them.

That's why we did this story — as a heads-up. Our matrix was simple. The impact of these risks must be felt within the next 12 months, and the risks themselves must be relatively unknown. Of course, relative is a relative term. We've omitted obvious big-picture concerns like the aging workforce and global competition.

Instead, we sought out more-tangible, more-discrete risks: from looming regulatory actions to litigation threats to insurance woes. Generally speaking, it's those sorts of defined dangers that end up bedeviling companies — and agitating even the most even-tempered of CFOs.

Green Laws: No Hazmats Beyond This Point
On July 1, a new law takes effect in the European Union. The directive prohibits the sale of electronic products that contain high levels of six industrial toxins, most notably lead and mercury. The Restriction of Hazardous Substances (RoHS) mandate is intended to keep discarded devices from leaching hazardous materials into soil or groundwater.

The amount of such E-waste is growing at an alarming rate on the Continent — three times the rate of other waste material. The restricted items (especially lead) can be found in a wide range of products, from toasters to computers. That's what makes RoHS such a bear. "This is a Y2K-type issue [for us]," says Jason Yoder, senior manager of regulatory affairs at network- equipment maker Cisco Systems Inc. "[RoHS] basically changes the way we do business."

In fact, RoHS changes the way all electronics manufacturers, suppliers, and distributors do business — regardless of whether they sell in Europe. RoHS is the blueprint for other green laws expected to be adopted in China, Japan, and the United States. California, for one, has already passed a similar E-disposal measure.

Assessing RoHS's financial impact isn't easy. But considering that U.S. high-tech companies export about $42 billon worth of products to Europe each year, the hit to earnings could be noticeable. Mostly, that bite will come from the retooling and testing of products, as well as inventory write-offs and warehouse snafus. An example: a manufacturer that currently orders by part numbers needs a whole new system to differentiate between leaded and nonleaded products.

Not surprisingly, large U.S. manufacturers are already retooling factories ahead of RoHS. But problems with outsourcers and sub-assemblers could prove to be the big hurdle, particularly for companies with complex supply-lines. Asks Arrow Electronics's Reilly: "What happens on July 2 if you have to shut down production because you don't have the right parts?"

Worse, problems arising from noncompliant products could trigger ugly disputes between suppliers and manufacturers. As Ken Rivlin, an environmental-law expert and partner at Allen & Overy LLP, asks: "Who will pay for the fines? Who will pay for product returns? Who will pay for product replacement?"

Who indeed? Managers at many smaller U.S. manufacturers and suppliers appear to be hoping that the EU extends the deadline — a dim prospect. In fact, Bijan Dastmalchi, president of advisory firm Symphony Consulting, predicts that, while most companies claim they will be in full compliance by July 1, only a few have done the due diligence necessary to ensure that their merchandise meets the requirements. That's worrisome, given the leanness of some supply chains. "European companies feel that 75 to 80 percent are ready now," notes Reilly. "But when it comes down to execution, the percentages will come down." — Elaine Appleton Grant

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