The Risk in Risk Management : Financial Organizations & the Problem of Conformity

This book posits that banks, by conforming to the actions and standards of other banks, actually run high risks. It presents a framework that uses four packages of constructs and organizational logic to understand conformity and deviance within investment banks and other large organizations. Featuring eight case studies of massive risk mismanagement, it walks the reader through the four conceptual perspectives on risk that might explain why and how economic rationality was overridden by social forces. By understanding conformity and deviance, groups within organizations will be better equipped to manage risk and go against the tides of conformity to their advantage.

Banks take very large risks by consistently herding in the same perilous directions while believing they are safe and unique. This book presents a risk management framework to understand conformity and deviance within investment banks and other large organizations. It suggests that some groups understand the dynamics of this conformity to their advantage. This requires a deeper understanding of the risk in risk management. Fraudsters can game the system to their advantage legally and illegally; therefore risk managers must understand the interplay of multiple logics in order to govern and manage risk.

Featuring short illustrative cases of massive risk mismanagement, this book walks the reader through four risk management perspectives (economic, institutional, evolutionary and contrarian) that explain why and how economic rationality is overridden by social forces. By understanding conformity and deviance, groups within organizations will be better equipped to manage risk and go against the tides of conformity to their advantage.