Imprudent Managers?

By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc.

“They argue that ratings are merely opinions and protected by constitutional safeguards on free speech, and that only imprudent investors would take decisions based on them.”

                                    Economist, November 10, 2012

The above is a quote from an Economist article that is discussing a case in Australia that found Standard and Poor’s liable for losses suffered by an investor in a Constant Proportion Debt Obligation.

As the above quote points out, Standard and Poor’s tried to defend itself by saying that its ratings are “merely opinions”, and that only “imprudent investors” would make decisions based on them. 

Ignoring the fact that Standard and Poor’s does not make a good sales pitch for their services, perhaps we as risk managers can (should) adopt a similar approach.  For instance, have every risk report submitted with a statement such as “This risk advice is only an opinion and only imprudent managers would take decisions based on it.”  I am not too sure that would work too well – or would it?