Case Studies on Risk Management Failure

René Doff

Having understood the advantages and disadvantages of traditional risk management in the previous chapter, this chapter will analyse five case studies. In each of them, traditional risk management activities fell short because unwanted risks materialised with significant financial effect. The chapter will also provide some generic guidance that will help prepare us for the analysis in the remainder of this book. Despite the knowledge of hindsight, it is worth emphasising that none of the stakeholders involved in these examples would have stated at the time that risk management was unimportant for them. They all practiced some form of risk management to keep abreast of developments, and what really matters is the underlying belief of how risk management would be practised.

CASE STUDY 1: LEHMAN BROTHERS

Amid the global financial crisis, Lehman Brothers filed for bankruptcy on September 15, 2008. It is said to be the largest and most complex bankruptcy in US history. At the time, Lehman Brothers was the fourth largest investment bank in the world and was over 150 years old, being founded as a trading company in 1850. It evolved well and played an important role in the creation