Disarming the Value Killers
A Risk Management Study
Not so long ago, risk management was considered a niche specialty, the province of academics and consultants, and not a priority for mainstream businesses. But that bubble of complacency was burst through a succession of cataclysmic events — the dot-com bust, 9/11, the Asian financial crisis, and a wave of business scandals. Today, most companies have become more attentive to risk management principles. Yet for many of these same companies, this increased awareness is still to be formulated into effective actions to address the threats. Indeed, when it comes to managing risk, many companies are still asking, “How can we better protect ourselves?”
To address this question Deloitte & Touche LLP and Deloitte Research, a part of Deloitte Services LP, examined instances of major losses in shareholder value experienced by hundreds of companies over the last ten years. Analysis gave way to understanding as patterns emerged from the data, and a picture of what we call “value killers” began to emerge. The consequences, in many cases, were surprisingly severe: Some of the value losses were so substantial that the affected companies never recovered. For business leaders, recognizing these potential value killers will begin to help answer the question of what companies can do to protect themselves.
Some of the answers to managing risk have already been offered by regulators and government legislation. The Sarbanes-Oxley Act of 2002, for example, is intended to reduce the occurrence of inaccurate, or even fraudulent, financial reporting. Beyond that, however, are several initiatives an organization can undertake to protect itself. In this research report, we hope you will find not only the causes of major loss, but some insight into how risk management techniques can help companies address these challenges.