It’s pretty simple, the higher your cholesterol, the higher your risk of death. Your cholesterol level is easy to measure and mostly a factor of your genetics and family history, but your own day-to-day regimen of diet and exercise can, in some cases, play a major factor. I happen to have very high cholesterol, and my doctor thinks it’s mostly because of my family history. Lucky for me, there are now drugs to manage high cholesterol.
Companies, almost across the board, today have an increased risk of death and I can argue that there is a loose analogy to cholesterol in the sense that risk is pretty easy to measure, and some of it is a factor of industry (like family history), and some of it is a factor of behavior (like diet and exercise). So when I look at an organization like The New York Times, right now their cholesterol risk is high but not dangerous, yet, and a lot of their troubles are because of their industry (family history). The branch of the family that went to online news seems to be on a better path, but the printed paper branch of the family is struggling. It’s not the fault of The New York Times that their industry is losing momentum, and because they make a great product, I expect that behavior and others will steer them away from higher risk. Their situation is understandable and excusable for now.
In tough economic times, it is also understandable that the auto industry is starting to see higher risk across the board, but it is inexcusable that an organization like GM didn’t manage their risk better, and I blame their struggles on bad behavior. The risk signs have been there for a very long time, even when the industry was strong. They are not in a commodity business, so their product needs to appeal to specific sets of customers, and it flat out failed to do that. To make matters worse, their risk is so out of control right now, given how long it takes a manufacturer to turn out a better product, I don’t think bailout money is close enough to a cholesterol drug to lower their risk to keep them alive. I hope I am wrong.
The one I cannot understand or excuse is the banking situation. It is largely a commodity business, where the understanding and measurement of risk is among the most mature, they still managed to have such bad behavior to get some of the highest risk of all. I know they even have the actuarial tables to track and report the risk, and re-insurance companies to spread risk, especially for disasters. I remember years ago my Dad got booted by his auto insurer for two no-fault accidents. Thankfully he was re-instated, but clearly that insurance company tracked the risk not just of his background history and age, but also his specific behavior and once the risk got too high their equations kicked him out. And oh, by the way, I don’t hear about auto insurance companies being in any trouble – so why just home banking and insurance? While I am not a banking expert by any measure, mortgages also have very knowable risk getting into them, and the customer behavior in making payments is also pretty straightforward. So even as mortgages were bundled and sold and re-sold, with tools in place to know the risk of each mortgage, it’s unbelievable to me that we are where we are. The good news is that I believe done correctly, bailout money will get this industry back on solid ground, but they should really have been the last ones to need it.
So if “what” you need to do is Manage Risk, understand how easy it is to know and measure, what parts of it you can manage through behavior, and how much are simply a factor of your industry, and from there decide how much rethinking you need to do to stay alive, and safe.
Now if you will excuse me, I am going to have my daily dose of simvastatin and hop my rowing machine.
-Ric
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