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CASE STUDY
Understanding Business Breakdowns:
Impact of Insufficient Risk Management​
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Encarnacion, Christian Alisoso
CBET-32-104E
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INTRODUCTION

This study is dedicated to investigating prominent business breakdowns attributed to

insufficient risk management practices, meticulously examining pivotal cases including the

Enron scandal, the 2008 financial crisis, the BP oil spill, and the Volkswagen emission scandal.

These case studies have been chosen for their explicit manifestation of the consequences arising

from lax risk oversight and ethical missteps. The study's primary objective is to conduct a

thorough analysis of the multifaceted elements that precipitated these crises, aiming to unravel

nuanced insights conducive to fortifying risk mitigation strategies within organizational

frameworks. Beyond scrutinizing these breakdowns, the study is dedicated to proffering

alternative risk management approaches. By delving into these crises, it seeks to extract

invaluable insights essential for augmenting risk mitigation practices across industries.

Furthermore, this research underscores its examination of the ramifications of these cases on the

domain of Human Resources.

In particular, it scrutinizes the pivotal role HR professionals assume in nurturing ethical

comportment and fostering effective risk management paradigms within corporate entities,

positioning HR as a pivotal entity in fortifying organizational resilience and risk abatement

strategies.

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EXECUTIVE SUMMARY

Insufficient risk management at Enron led to fraudulent practices, while the financial

crisis stemmed from lax regulations and risky lending. The BP oil spill and Volkswagen scandal

resulted from inadequate safety measures and ethical misconduct. Alternate risk management

strategies involving stringent regulations, robust risk assessment, and ethical emphasis could

have averted these crises.Insufficient risk management practices have resulted in significant

business breakdowns, exemplified by Enron's fraudulent activities, the 2008 financial crisis, the

BP oil spill, and Volkswagen's emission scandal.

These crises stemmed from a lack of transparency, ethical lapses, and inadequate risk

assessments. Alternate risk management strategies involving stringent regulations, robust risk

assessment tools, and a cultural emphasis on ethics could have mitigated these crises. This

summary underscores the critical need for organizations to prioritize transparency, ethical

conduct, and effective risk management. In the realm of Human Resources, these cases highlight

the pivotal role HR professionals play in promoting ethical behavior, fostering risk awareness,

and ensuring compliance within organizations.

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PROBLEM

Insufficient risk management practices, evident in the breakdowns experienced by Enron,

the 2008 financial crisis, BP's oil spill, and Volkswagen's emission scandal, hold profound

implications for the realm of Human Resources (HR). These crises unveiled a lack of

transparency, ethical misconduct, and inadequate risk assessments within organizational

frameworks, signaling a fundamental failure in governance and culture. For HR, these incidents

emphasize a critical need to realign organizational values, reinforce ethical behavior, and

establish a culture of transparency. HR professionals are tasked with integrating robust risk

oversight mechanisms into core functions such as recruitment, training, and performance

management, necessitating close collaboration with other departments to identify, assess, and

effectively manage risks across the organizational spectrum.

Furthermore, the crises underscore the imperative for HR to not only institute but rigorously

enforce policies, training, and ethical guidelines, thereby preventing future ethical lapses and

ensuring regulatory compliance. As these breakdowns significantly impact talent retention,

employee morale, and the organizational appeal to potential recruits, HR stands at the forefront

in shaping a risk-aware culture within the organization, underscoring the strategic importance of

proactive risk management, ethical frameworks, and regulatory adherence for sustained

organizational resilience and success.

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SOLUTION

Implementing stringent regulations, fortified risk assessment methodologies, and

fostering a culture of ethics and transparency would have significantly mitigated risks by

establishing clear boundaries, enhancing proactive risk identification, and promoting responsible

conduct within organizations.

●​ Stringent Regulations: Enforcing strict regulations would have imposed legal

boundaries, preventing fraudulent activities like those seen in Enron. These regulations

would mandate transparent reporting and prohibit deceptive financial practices, creating a

framework that discourages unethical behavior.

●​ Fortified Risk Assessment Methodologies: Implementing comprehensive risk assessment

tools, as seen in the financial crisis, could have highlighted the risks associated with

subprime mortgages. Advanced risk assessment models would enable organizations to

identify potential threats early, allowing for proactive risk mitigation strategies.

●​ Culture of Ethics and Transparency: Fostering a culture of ethics and transparency,

similar to the scenarios in BP and Volkswagen, would embed ethical behavior within the

organizational DNA. Such a culture encourages employees to speak up about safety

concerns (as in BP's case) and discourages deceptive practices (as in Volkswagen's case).

Stricter controls, such as regular safety audits in BP's operations or independent emission testing

in Volkswagen, could have caught issues before they escalated. Comprehensive risk evaluation

tools would have prompted a more accurate assessment of potential hazards, leading to proactive

risk management strategies. Moreover, a commitment to ethical conduct would steer decisions

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toward long-term sustainability rather than short-term gains, potentially preventing or

minimizing the impact of similar breakdowns in the future.

In essence, these measures collectively create a system that not only identifies and mitigates risks

but also establishes a corporate culture that prioritizes ethical conduct and transparency,

ultimately reducing the likelihood and severity of future breakdowns.

CONCLUSION

The examined cases serve as poignant reminders of the pivotal significance attributed to

transparency, ethical conduct, and adept risk management within the landscape of businesses.

These instances spotlight the indispensable requirement for stringent regulatory frameworks,

fortified risk assessment methodologies, and a pervasive cultural emphasis on ethics and

transparency. Within the domain of Human ResoZurces, these crises distinctly underscore the

indispensable role HR professionals hold in nurturing ethical behavior, fostering heightened risk

awareness, and vigilantly ensuring regulatory compliance within organizational frameworks.

Insights Drawn:

These cases unveil crucial insights pertinent to the field of Human Resources. They emphasize

that HR professionals wield a substantial influence in shaping organizational ethics and risk

management strategies. Moreover, these crises accentuate the necessity for HR to function as a

proactive entity, actively involved in implementing stringent regulatory measures, embedding

comprehensive risk assessment protocols, and fostering an ethical culture to safeguard against

potential breakdowns.

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The impact on HR is monumental, necessitating a strategic shift toward integrating risk oversight

into HR functions, emphasizing ethical conduct, and fortifying compliance measures. HR

professionals must take a proactive stance, working in tandem with other departments to bolster

risk management strategies and imbue a culture of ethical behavior and transparency across all

organizational levels.

These crises serve as instructive lessons, prompting HR professionals to spearhead

organizational changes that prioritize ethical conduct, bolster risk mitigation efforts, and adhere

unwaveringly to regulatory standards, thereby fostering resilient and ethically driven workplaces.

RECOMMENDATION

These recommendations collectively create a robust framework that not only safeguards

the organization against potential risks but also fosters a culture of transparency, ethical behavior,

and collaborative risk mitigation across all levels, ensuring the organization's resilience and

sustainability in an ever-evolving business landscape.

●​ Comprehensive Risk Assessment Frameworks: Implementing these frameworks is vital

to proactively identify and mitigate potential risks across all business operations. This

systematic approach helps in anticipating, evaluating, and managing risks effectively,

ensuring that the organization is well-prepared to handle uncertainties and unforeseen

challenges.

●​ Fostering a Culture of Ethical Behavior and Transparency: Continuous training and

awareness programs cultivate a workplace culture where ethical conduct and transparent

communication are not just encouraged but ingrained. This culture ensures that

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employees understand and adhere to ethical guidelines, fostering trust among

stakeholders and reducing the likelihood of unethical incidents.

●​ Ensuring Compliance with Stringent Regulations: Adherence to stringent regulations is

crucial in maintaining legal and ethical integrity. Reinforcing internal controls ensures

that the organization operates within the bounds of legal frameworks, minimizing the risk

of penalties or legal consequences that may arise from non-compliance.

●​ Integration of Risk Management into HR Functions: Integrating risk management

practices within HR functions enhances the organization's resilience by embedding risk

assessment and mitigation strategies into core HR processes. This integration allows HR

to contribute significantly to organizational risk management and ensures a proactive

approach to potential threats associated with human capital.

●​ Collaboration Across Departments: Effective risk management requires a collaborative

effort. Collaborating across departments facilitates a holistic view of potential risks,

leveraging diverse expertise to identify, assess, and mitigate risks comprehensively. This

collaboration fosters a shared responsibility for risk management, enhancing the

organization's ability to respond to and mitigate risks effectively.