Risk Analysis at AIG and Other Strange Corporate Behavior!
A local small and solo law firm networking group here in Minnesota has been discussing Risk Analysis. And then, out of the blue, we read the story that at AIG, the Risk Management Group was denied access to the workings of the the very Group that created the massive losses.
What is the purpose of risk analysis? It is to identify risk and recommend steps to take to avoid or minimize the risk. In other words, keep the risk manageable. But AIG created a Risk Assessment function, and then allow executives to deny or limit access by the very people assigned to assess the risk. Once again I wonder why the company does not go after the executives that prevented the risk assessment group to do its' work. You can't be surprised when the risk management executives are prevented from doing their job, and then massive losses occur.
There is only one real reason to deny access to a team or executive that will assess the risk to the company of any action. It is because the person or group wanting to move forward with the proposed action - the sale - or the business venture - is afraid someone will say, "No!" And why are they afraid of someone shining light on their activities? Because they make a lot of money so long as no one pulls the plug on the activity.
Additionally, and I can speak from experience, when the time for a decision is very short, the group pushing a course of action can mis-represent facts, when they know you will not have access or time to check their answers.
In another life, many years ago, I had some experience in the middle east. I was asked by a client to review a contract with a middle east government agency. I had two questions: Did you price in the taxes? And, how are you going to perform this work since this job requires management of a major foreign project and the company is not in that business?
I was assured that the taxes were priced in and that they were bringing on the people with the necessary experience. Neither of these responses was true, and the red ink started flowing almost immediately.
People who work on commissions based on sales (not profit or revenue - but sales) are very encouraged to get the deal approved, regardless of the risk. The risk is irrelevant. Lawyers and risk assessment functions get in the way.
The key to AIG is not to worry about the bonuses. Instead, the company should sue those responsible for taking on risk beyond their authority, and those that interfered with the normal functioning of the Risk Assessment executives. Those employees and ex-employees responsible should be held accountable for their actions in destroying the company.
