Is Risk Management too Much for Mere Mortals?

NEW YORK (TheStreet) -- Sen. Chris Dodd of Connecticut and Rep. Barney Frank of Massachusetts, both Democrats, saw nothing wrong with the subprime mortgage industry, Fannie Mae (FNMA) or Freddie Mac (FMCC) months before the meltdown.

Hewlett-Packard's (HPQ) board seemed befuddled by then-CEO Leo Apotheker's decision to sell off HP's core PC business.

Incredible experts of investment, J.P. Morgan Chase's (JPM) Jamie Dimon and Ina Drew were unable to understand the $2 billion gamble, er, investment, they made.

MF Global's chief, former New Jersey senator and governor and former Goldman Sachs (GS) CEO Jon Corzine had a problem misplacing $1.6 billion.

And the list goes on....

It seems the most blatantly obvious issues that could risk the downfall of millions of employees, investors and other stakeholders were unpredictable, unknown or incomprehensible for even the smartest people in America.

Excuse the hyperbole, but surely when the best and brightest and most powerful can't get it right, how can the Securities and Exchange Commission and Department of Justice go after any company for not getting it right?

Is risk management too much for mere mortals?

Maybe the billions of dollars invested in salaries, hardware, software, consultants, lawyers, accountants and enforcement is simply a waste.

But wait a minute: Isn't risk about deciding, "Does the upside outweigh the downside?"

No, most executives seem to think it's about, "Is the worst likely to happen and, if so, can we survive it?"

These are two different views. The former is common sense while the second is gambling on survivability.

The first scenario says, "Our reputation is too important to jeopardize on this move, decision, etc."

The second scenario of likelihood and survivability yields settlements and calculated gambling that begging forgiveness and paying a fine is "the cost of doing business."

The reality is there is no crystal ball for predicting a catastrophe, but there certainly is common sense board governance and CEO leadership that should avoid risk by "putting it all on black 22."

Risk is not gambling, or it least it shouldn't be.

Risk is knowing the value of your company and determining the values that will govern its sustainability and growth.

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