Harvard Business Review, July 2015
Following a crisis, regulators and managers naturally take steps to prevent a recurrence. In 2002, after Enron and WorldCom succumbed to massive accounting fraud, U.S. legislators passed the Sarbanes-Oxley Act, which gave directors and executives new oversight responsibilities. In the wake of the 2008 financial crisis many large banks changed their business models, and other companies implemented systems to better manage credit risks or eliminate overreliance on mathematical models. But there’s a problem with managing risk retrospectively: It’s a variation on what military historians call “fighting the last war.” As memories of the recession fade, leaders worry that risk management policies are impeding growth and profits without much gain. […read more]