Risk Management Breakdown at AXA Rosenberg: The Curious Case of a Quant Manager Trusted Too Much

4 Pages Posted: 31 May 2013 Last revised: 3 Sep 2013

See all articles by David F. Larcker

David F. Larcker

Stanford University - Graduate School of Business

Brian Tayan

Stanford University - Graduate School of Business

Date Written: May 30, 2013

Abstract

All companies face challenges designing a governance system that works best for their particular situation and structure. Even the owners of privately held companies sometimes struggle with issues of separation and control. The challenges can be particularly acute when a company founder has considerable influence over the organization and its culture, and third-party investors have been brought in to share ownership.

We examine the interesting case of AXA Rosenberg, a joint venture investment management firm founded and run by legendary finance professor Barr Rosenberg. Although successful for a time, the firm eventually collapsed due to a failure in risk management.

We examine the governance structure, unique personalities, and series of events that led to the breakdown of the firm, and the SEC investigation that resulted in Barr Rosenberg’s lifetime ban from the securities industry. We ask: Is it possible for a board to monitor a renowned executive with extremely specialized knowledge? How can the board satisfy itself that risks are appropriately known and monitored? How does an executive’s personality affect a company’s risk management practices?

Topics, Issues and Controversies in Corporate Governance and Leadership: The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the book Corporate Governance Matters, and A Real Look at Real World Corporate Governance.

Keywords: risk management, board of directors' oversight, governance structure, personality factors, separation and control, corporate governance

JEL Classification: J33, G34, M41, M52

Suggested Citation

Larcker, David F. and Tayan, Brian, Risk Management Breakdown at AXA Rosenberg: The Curious Case of a Quant Manager Trusted Too Much (May 30, 2013). Rock Center for Corporate Governance at Stanford University Closer Look Series: Topics, Issues and Controversies in Corporate Governance and Leadership No. CGRP- 33. Available at SSRN: https://ssrn.com/abstract=2272178

David F. Larcker (Contact Author)

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

Brian Tayan

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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