What Value Killers Teach Us About Strategic Risks

Identify Value Killers

Companies can get clobbered. Deloitte’s study on “value killers” is a great lesson in understanding how company value moves around and just how much risk exists.

All public companies should try to identify their own value killers. Even a one day approach to stock price changes can reveal insights. Here’s one way to do it:

  • 1) Download your daily stock price.
  • 2) Calculate the one day percentage changes.
  • 3) Sort (consider absolute values).
  • 4) Investigate the days around the top drops and top gains to see what was happening. Consider beta or other major events that caused the entire market to move. Drill down to what moved your company's value.
  • 5) Compare the daily lessons/event to your strategic risks. 

What Might Be Learned or Gained?

- When and why the market likes you or does not like you.
- How much your own corporate value moves around.
- Confirmation that your strategic risks already identified are correct.
- Discovery of new strategic risks.
- A pattern of missing the same risks on a regular basis.
- A new dimension of risk—timing.  There are certain times in a company's history when having a certain risk event happen is significantly more troublesome than if it occurs at another time. This should be factored into risk action plans.
- You are sometimes susceptible to other people’s risks. My graduate ERM students at St. John's have found that sometimes, a company takes a hit not for what they have done but for a risk that has hurt another company. The market then assumes other companies in the same industry have the same problem. A little deep analysis and forward thinking (and perhaps better disclosures) could help mitigate this from happening to your company.