Chapter 41

Shareholder Value Creation and Destruction

Risk management is the discipline that clearly shows management the risks and returns of every major strategic decision at both the institutional level and the transaction level. Moreover, the risk management discipline shows how to change strategy in order to bring the risk-return trade-off into line with the best long- and short-term interests of the institution.

In Chapter 1, we began this book with the preceding definition of risk management. In the 39 chapters after that, we showed, step-by-step, how to take advantage of existing financial and information technology to achieve these objectives. The 2006–2011 credit crisis has been the venue for the greatest mass destruction of shareholder value in the financial services industry in North America and Europe since the Great Depression. How can a serious and highly skilled risk manager help ensure that his or her financial institution is back on track, pursuing best practice, risk-adjusted shareholder valuation creation? That is the subject of this chapter. There are three keys to success, which we cover in turn:

1. Do no harm.
2. Measure the need to change.
3. Master the politics and exposition of risk management.


In the introduction to this book, we related the biggest mistakes and fallacies in the risk management discipline. The human tendency to repeat these mistakes is pervasive, and perhaps the biggest part of one’s career as a best practice risk manager ...

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