Risk is a fact of business life. Taking and managing risk is part of what companies must do to create profits and shareholder value. But the corporate meltdowns of recent years suggest that many companies neither manage risk well nor fully understand the risks they are taking. Moreover, our research indicates that the problem goes well beyond a few high-profile scandals.
McKinsey analyzed the performance of about 200 leading financial-services companies from 1997 to 2002 and found some 150 cases of significant financial distress at 90 of them.1 In other words, every second company was struck at least once, and some more frequently, by a severe risk event. Such events are thus a reality that management must deal with rather than an unlikely "tail event."
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