Home > Enterprise Risk > General Motors, risk management and lessons from the unfortunate ignition swith event.

General Motors, risk management and lessons from the unfortunate ignition swith event.

I would like to bring forward the case of firms that, when managing risks, deal with the most valuable human asset, life. The case of the automobile industry, the airlines and so many other sectors.

When we analyse the dramatic events these companies are forced to face, we may simply think of these tragedies as accidents; but they generally offer a number of lessons that help other managers, boards and companies to avoid any other future similar circumstances. This is the case of General Motors and the defects in some of their vehicles that have apparently caused several life losses in a long period of time without the company noticing it at the top nor doing anything effective to stop the casualties. In particular, risk oversight and management systems in the company have been put into question.

The so-called Valukas report (2) depicts what happened, the failures in information procedures and risk management design. Let me recommend the brief and insightful summary recently presented by Michael W. Peregrine in the CLS (Columbia Law School) Blue Sky Blog, under the title “The Broader Governance Lessons of the Valukas Report”. (1)

Outlining in the main lessons the blogger summarizes, the risk management process IS a board`s responsilibity, and directors must think the worst thing can happen; the board also needs to define and communicate very clearly the type of events that must be transmitted immediately to the top risk control structure; culture, the tone at the top, compensation, the elimination of isolated parts in the organization as for the flow of information….are also topics that Mr. Peregrine outlines.

Of course, when analyzing the extreme cases, lessons extracted very deeply show the need to do things properly, and risk management is a clear example.

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