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Risk Taking- A Corporate Governance Perspective
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In February 2008, the board of the French bank Société
Générale learned that one of its traders had lost $7.2 billion
dollars. Jerome Kerviel, the trader in question, had approval
to risk up to $183 million. Since 2005, however, Kerviel had
apparently ignored his limits and took on exposures as high
as $73 billion—more than the market value of the entire
firm. Société Générale’s board, managers, risk management
systems, and internal controls failed to detect, much less
halt, the reckless bets. When finally discovered, the failure in
risk governance and management had cost Société Générale
and its shareholders clients, money, and reputation. Similar
failures of risk governance feature in scandals at UBS and
Baring, with the latter failing to survive.
In the 2008 economic crisis, several firms in emerging
markets also suffered major losses due to failed risk
management and governance. Brazilian pulp producer
Aracruz, and meat processor Sadia, had extensive losses on
foreign exchange derivative contracts. Ceylon Petroleum
Corporation (CPC) in Sri Lanka stood to lose hundreds of
millions on commodity derivatives. In all of these cases, the
chagrined boards (and, in the case of CPC, the state as the
main shareholder) asserted that managers had acted without
proper authorization.
Losses and the collapse of firms due to failures in risk
handling and risk governance hurt the wider community
through loss of jobs, goods and services. These losses are
felt particularly severely in emerging markets where the
economies are vulnerable and jobs are scarce.
Saylor - Personal Name
1st Edition
NONE
Risk Taking- A Corporate Governance Perspective
Management
English
2008
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