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From Crisis To Catastrophe

October 2, 2008

We move in cycles …

The South Sea Bubble, Tulip Mania …. during times of great change, we experience great scams. Get-rich-quick schemes from which the perpetrators generally escape with tremendous riches, the late-comers get the blame and the investors carry the cost. And the politicians – well, wise after the event, they pontificate and promptly take action to close the stable door.

The financial services ‘bubble’ burst, with an air of great inevitability. Of course no one believed it would last (at least not in retrospect), but the truth is that it was simply too complex for most people to understand what was going on.

The situation today is just a taste of the complexity that will challenge all of us in this fast-changing networked world. We do not know what will happen. So we must focus on how we can best manage uncertainty, not how we can create certainty. Rigid rules are not the answer – unless the solution to bad business is to have no business.

The rules for risk management are being rewritten  – and I will write more about that in a future blog. Today, I focus on the fact that many industries, many companies have not got it wrong. The ills of a few big names in one specific sector should not be allowed to drive public policy. The politicians – quite rightly – feel embarrassed and stupid. They are paid to oversee these things; sadly, many were either lacking the expertise, or they were paid by the perpetrators, in campaign fees and political funding, so had no incentive to understand.

So now they feel obliged to exact retribution. But if we are not careful , their retribution will simply damage competitiveness and punish only the people it is meant to help.

Let’s look on the bright side. Today. IACCM released the results of its study of the 25 Most Admired Companies in post-award contract maagement. As this study shows, most corporations have simply been moving ahead wih increasingly responsible risk management and governance regimes. The last thing they need is more regulation. They are already suffering from the credit crunch and drying up of demand – let us hope that the ignorance and populism of most politicians does not now turn a crisis into a catastrophe.

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