To protect shareholder value, companies must link risk management with strategic planning and avoid overreacting to regulatory compliance mandates.
Here’s a fact that bucks conventional wisdom: More shareholder value has been wiped out in the past five years as a result of mismanagement and bad execution of strategy than was lost because of all of the recent compliance scandals combined. This is a key finding of a recent Booz Allen Hamilton survey and analysis of the performance of 1,200 firms with market capitalizations of more than $1 billion for the five-year period from 1999 through 2003.
Consider the 360 worst financial laggards. Eighty-seven percent of the value lost by these firms was attributable to strategic missteps — management ineffectiveness in reacting to competitive pressures or forecasting customer demand — and operational blunders, such as cost overruns and M&A integration problems. Only 13 percent of the value destruction suffered by these companies was caused by regulatory compliance failures or was a result of poor oversight of company operations by corporate boards.
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