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Straight To The Bottom Line by Shelley Stewart, Michael Katzorke, Douglas Smock, Robert Rudzki

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19

Risk Management

When — and How — to Hedge Your Bets

Most senior executives are aware of the term “risk management.” However, there is evidence to suggest that being aware of the term is a far cry from understanding the strategic process of risk management, avoiding the pitfalls, and capitalizing on the opportunities.

In 2001, Ford Motor Co. announced a $1 billion write-down of palladium inventories. There was considerable negative press about that earnings surprise and considerable second-guessing regarding Ford’s risk management process.

Remember the notoriety earned by Bankers Trust Company in the 1990s? Several of BT’s high-profile clients lost hundreds of millions of dollars on “hedging” and accused BT of failing to explain the pros ...

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