Recent and ancient history alike are full of failures of companies having disregarded the risks induced by their strategy. No sector is spared and even the most successful executive can trip over. The aggressive strategy by Jon Corzine (former CEO of Goldman Sachs) of turning a US brokerage firm into a “capital markets-focused investment bank” and growing proprietary trading to produce 20% of overall revenues of the firms led, less than 9 months later, to the liquidation of MF Global (October 31, 2011) after wrong bets on eurozone sovereign debt.
Likewise, the enthusiasm and pride by the French bank Societe Generale of being a market leader in equity derivatives trading in 2006 - 2007, fostered a generalised lack of risk awareness allowing a €5bn loss in rogue trading by Jerome Kerviel that almost bankrupted the bank and from which, one can argue, she has still not fully recovered.
In the insurance sector, insurers and reinsurers particularly exposed to the equity markets for the investment of their premiums during the booming late nineties in a relaxed regulatory environment, suffered heavy losses after the burst of the technological stock market bubbles in 2000-2002. For instance, Group profit of Munich Re fell from €175bn in 2000 to €250m in 2001. Munich Re also lost 79% of its market value between its peak in November 2000 and its bottom in February 2003 (Data: FT.com). Amongst all the risks insurers and reinsurers pride themselves to bear and measure, those taking on the investments side should not be overlooked but rigorously managed as part of the firm’s strategy.
In the technological sector, the legendary firm, 131-year-old company Eastman Kodak Co. struggles to survive after a long slide started with the rise of digital photography that the photo giant did not catch in due time, even though they had researched the technology. Kodak is now is attempting to sell some of its patent portfolio and to avoid have to file for Chapter 11 in the coming weeks (WSJ, Jan 5, 2012). Risks arising from competitive technologies and better products are a cornerstone of strategy definition.
Want to know more? Come to the City of London on February 9th for a first FREE Strategy and Risk Happy Hour Forum by Manigent.
A short 20 minutes presentation will start the discussion at 5.00 pm, followed by question time and various inputs from the public who is free to join us at any time between 5.00 pm and 6.00 pm when we expect to finish.
Registration and details on: http://www.manigent.com/manigent-happy-hour/
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