"The US administration's proposal for reforming the US Social Security system may be an example of unintended consequences leading to predictable surprises for many public corporations," warns Dr. Robert Charette, Director of Cutter Consortium's Enterprise Risk Management & Governance practice and Cutter Consortium Fellow.

The currently proposed reforms to Social Security would allow workers to voluntarily put some of their Social Security contributions into personal accounts, which they would be free to invest. As proposed, "limitations would be placed on the risk of investments permitted in personal accounts and would include low-risk, low-cost options like broad index funds similar to those currently available to Federal employees." While acknowledging that there may be some investment risk, proponents of reform argue that over the past 80 years of experience, annual returns on private investments have averaged 8%, while young workers can only expect a 2% return on their Social Security contributions.

"But what if Social Security reform took place back in 1990?" asks Charette. "Just a decade ago, blue chip utilities (telephone, gas, electric) might have been included in workers' personal accounts. Many of the investments would no longer have been safe, dependable, or producing good returns by the late 1990s. Workers would likely have demanded that their representatives in Congress raise the allowable risk level for their investment portfolios in order to include all those tempting dot-com stocks.

"Roll the clock forward to 2002. The boom has burst, corporate scandals have erupted, and numerous citizens -- tens of millions perhaps -- have seen their portfolios turn to ashes. What sort of political pressure do you think these folks would exert on Congress to make them 'whole' again? In such an environment, what actions would the government take? Would certain profitable industries be highly regulated for the public good to create secure 'widows and orphans' stocks?"

Charette questions the opportunity for corporate risk entrepreneurship and innovation under such conditions:

• Would the government allow certain corporate mergers to occur if it meant more risk to investors?
  
  
• What about major changes in corporate strategy? Would the government make it difficult for a company to change its strategic direction if it placed tens of millions of retirees' personal accounts at risk?
  
  
• Corporate growth requires risk-taking, which sometimes means failure. Would taking risk then be seen as being socially irresponsible?
  
  

"It is not out of the question that companies might look at such a future and decide that being privately held is a preferable position to being publicly traded," predicts Charette. "Governance regulations are already causing many small companies to rethink going public, and some public ones to explore becoming private again. What effect will an environment of greater scrutiny of corporate decisions have on future US competitiveness and innovation? What unintended consequences might arise?"

According to Charette, "If more and more did decide to remain or go back to being private, that would mean that there were fewer and fewer companies workers could invest in. While the remaining companies might benefit from being 'the only game in town,' they would also likely be so highly regulated to ensure they didn't fail that they might as well be government owned."

The Cutter Consortium Enterprise Risk Management & Governance practice is led by Dr. Robert Charette, an international authority and industry pioneer in information systems, technology, and enterprise, program and project risk management. Dr. Charette serves as a senior risk advisor to Global 100 CEOs, CFOs, program and project managers, as well as to senior government officials worldwide. The expertise of the ERM&G practice is available through content, consulting, mentoring and training services.

For more information or to schedule an interview with Robert Charette, contact .

More information about Dr. Robert Charette is available at http://www.cutter.com/meet-our-experts/charetter.html.

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