In April 1912, Sylvia Caldwell boarded the RMS Titanic with her 26-year-old husband, Albert, and their 10-month-old son, Alden, on its maiden voyage from Southampton to New York City. The young missionary family was journeying from Siam (now Thailand) to America en route Naples, mostly because the mission work had dealt a blow on Sylvia and she had become weary and homesick. Having crossed from Siam in a small ship which made her extremely seasick, Sylvia protested on sighting the RMS Carpathia docked at Naples and their itinerary was quickly altered in favour of the more luxurious RMS Titanic leaving from England.
Having perhaps paid a premium for her board, she is credited with asking a porter if the ship was really unsinkable
as widely publicized. His reply was something to the effect that “God himself could not sink this ship”.
The overt confidence in the porter’s statement was a reflection of the widely believed notion that the Titanic and its sister ship, the RMS Olympic, were indeed designed to be unsinkable because of the technological ingenuity that renowned Irish shipbuilders Messrs. Harland and Wollf had dedicated to their design and construction. One wonders how a ship that weighed well over 46,000 tonnes and was capable of reaching speeds of up to 23knots (26 miles per hour), a remarkable achievement at that time, could have been labelled unsinkable and why no one doubted this claim. Well, it was the beginning of the twentieth century and people had absolute faith in emerging science and technology and promoters from the White Star Line Shipping company took advantage of this naïveté.
The ship, under the helm of the revered Captain Edward John Smith, sank in the early morning of 15 April, 1912 after colliding with an iceberg in the North Atlantic Ocean, causing the deaths of more than 1,500 people in one of the deadliest peacetime maritime disasters in modern history.
The demise of celebrated global investment banks Bear Stearns and Lehman Brothers previously regarded as “too big to fail” during the global economic recession of 2007-2009 was rather synonymous with sinking of the Titanic. The two firms went under in record time and it took the concerted efforts of the US government and the Treasury Department to save their cronies such as AIG, Fannie Mae and Freddie Mac. While the Titanic’s doom was reportedly caused by the captains’ decision to steam into a dangerous area at a high speed with a lookout who had no binoculars on his shift, the corporate firms sank majorly due to the collapse of effective risk governance processes in the investment banking and mortgage finance industry. A rise in sub-prime lending and risky mortgages with the anticipation of quick and easy refinancing options proved fatal. As disastrous as steaming on top speed into iceberg territory proved for the Titanic, so did investing in “low priority-high interest” mortgage backed securities targeted at the prime lenders prove for the investment banks. Also, just as there were not enough lifeboats on the ship, there was
no continuity management plan on the part of the investment banks for their precarious investment practices.
The lessons from the Titanic instituted strict maritime safety standards that are continually improved upon till this
day to safeguard lives and property and the crisis on Wall Street has taught financial institutions to better manage
business risks while the financial industry regulators are more resolute to wield the stick on the recalcitrant firms that continue to err.
However, the critical question is: why must industries suffer huge losses before appropriate risk structures are enforced? The reality is that effective risk management frameworks can be proactively designed and implemented by any forward-thinking company in any industry to assure continued organizational success whilst surreptitiously avoiding crippling losses.
The fact that a catastrophic situation looks highly unlikely does not make it impossible. Therefore, businesses must invest considerably in foolproof enterprise risk management processes that are central to management’s strategic decision-making in order to effectively guide organizational direction at all times. Further to this allusion is that besides financial and operational risks, the biggest risks faced by corporate organizations are reputational, and it is not unheard of for institutional establishments to wave goodbye to their hard-earned brand name in less time than one can say Jack Robinson due to poorly managed reputational risk factors. What this means in essence is that having functional risk management procedures alone may not suffice, but rather executing an integrated, enterprise-wide and controlled risk governance process with relevant input from all aspects of the organization and external supply chain systems.
In an interesting twist of events, the Carpathia that the Caldwells rejected was the same ship that eventually rescued all 705 survivors from the icy waters after the shipwreck. The strong message to corporate firms who have gained competitive advantage through technological and process excellence is that their loss would be the gain of lesser competition – if they allow themselves fail.
ADEWALE AKINWALE
Akinwale, risk management and strategy
consultant, is winner of the BusinessDay
Risk Manager of the Year at
the Nigerian Risk Awards 2014.
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