Seven Issues from 18 Crises

AIRMIC has recently published a study “Roads to Ruin” performed for them by the Cass Business School (CBS). They had asked CBS to identify lessons that could be learned from 18 high profile corporate crises of the last decade.  CBS found seven main causes for the 18 crises:

  1. Inadequate board skills and inability of board members to exercise control
  2. Blindness to inherent risks, such as risks to the business model or reputation
  3. Inadequate leadership on ethics and culture
  4. Defective internal communication and information flow
  5. Organizational complexity and change
  6. Inappropriate incentives, both implicit and explicit
  7. ‘Glass Ceiling’ effects that prevent risk managers from addressing risks emanating from top echelons
The full report goes through the 18 crises in detail.
Of the 18, 7 were finance related:
  • Enron
  • Arthur Anderson
  • Independent Insurance
  • HSBC / Nationwide / Zurich Insurance
  • Northern Rock
  • Société Générale
  • American International Group

All 18 occurred between 1999 and 2008.

In that time period, there were quite a few other firms that had major crises.  Such as:

  • Yamaichi Securities
  • The Equitable
  • HIH
  • Parmalat
  • WorldCom
  • The Accident Group
  • Terra Securities
  • Lehman Bros
  • Wachovia Bank
  • Bear Sterns
  • Merrill Lynch
  • Countrywide

These firms were also challenged by the same 8 problems.   The first of those 8 is key.   Board skills and ability of the board to effect change.

The centrality of this issue is troubling to risk managers because the board skills and authority are almost always outside the risk manager’s control.

Just as troubling for the sponsors of the study, AIRMIC, an organization largely of insurance brokers, was that insurable risks payed a very small part in any of the 18 crises.  This is a problem for their ideas of expanding from their current roles managing insurance programs to managing ERM programs.

ERM in most firms has not embraced the idea of managing Strategic Business Risk.  That is natural because CEO’s usually see that as their personal jobs.  Not likely to be delegated to a risk manager.

So ERM will usually be defined as managing ALL of the risks of the firm except the Strategic Risks.

Explore posts in the same categories: Enterprise Risk Management


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One Comment on “Seven Issues from 18 Crises”

  1. […] guru Dave Ingram cites a business school analysis (pdf) of 18 corporate crises from 1999 to 2008. Seven causes […]

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