"What Went Wrong?" Is the Wrong Question


The bull market in “what went wrong” business books has produced a run on bailout postmortems.

If you're interested in what went wrong, this Slate discussion conducted by financial writers (some of whom are publishing forthcoming books on what went wrong) provides fresh insights on the credit crisis and its aftermath.

The comments in this thread are valuable, but this discussion and others like it miss a larger, contrary point: Corporate risk management capabilities, even in the banking sector, are in great shape.

First, here's some of the good stuff.

One of the writers, Barry Ritholtz (author of soon-to-be-published Bailout Nation) identifies a list of individual decisions in the past 20 years -- including the Commodity Futures Modernization Act, the repeal of Glass-Steagall, and the Fed's decision to drop interest rates from 2001-2003 -- and says, “Reverse each of these [decisions] and the total systemic damage is far, far less.”

And here's my contrarian complaint: The overall quality of corporate risk management capabilities in all sectors has never been better. These capabilities have been improving for years -- a trend that started well before the crisis and one that continues today.

The banking sector is moving toward a common, shared language and platform for identifying and mitigating operational risk (and has been for several years).

The move to XBRL, the ongoing convergence of international and U.S. accounting/reporting standards, the widespread focus on formal GRC programs, and the new (and appropriate) regulatory focus on addressing systemic risk mark significant opportunities for improvements in overall corporate risk management capabilities.

Could human nature and individual decision-making use some improvement? Surely, and maybe this crisis is a wake-up call (maybe not, given that we tend to give ourselves these sorts of wake-up calls every ten years or so). Focusing on what went wrong sells books right now; focusing on what went right will sell books, and much more, over the long term. ###

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GRC expert Eric Krell supplies the Business Finance community in-depth articles and commentary examining governance, risk, and compliance.

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