Many headlines for the past few days have been focused on the happenings at Silicon Valley Bank and the resulting contagion within the financial industry. I believe this to be a fitting time to bring my career and one of my favorite movies onto the same plane. The career is business continuity, and the movie is “Margin Call”.
For those of you they have suffered the indignities of not watching this work of art, "Margin Call" is a 2011 movie that tells the story of a group of employees at a Wall Street investment bank who discover that the firm's holdings of mortgage-backed securities are on the verge of causing a catastrophic financial collapse.
As it relates to what we all do as professionals, there are several takeaways in this movie. In general, the movie highlights the importance of crisis management, a key component to a continuity capability, in several ways:
- Identifying the crisis: The first step in crisis management is to identify that a crisis exists. In "Margin Call," the crisis is identified by one of the risk management employees who discovers that the firm's mortgage-backed securities portfolio is much riskier than previously thought. A key aspect here is that the identifying employee was not one of the highly compensated employees. No, they were simply doing their boring job in risk management and deemed it necessary to take a risk by telling their boss that there was a big problem.
- Assessing the risks: Once the crisis has been identified, the next step is to assess the risks associated with it. In the movie, the risk management team calculates that the firm will face losses of over $8 billion if it doesn't take immediate action. The movie also illustrated the need to see the larger picture because the identified risk was not just with their firm but, like in today's, news the contagion could spread to other financial institutions. This information needed to be considered in order to make a good decision.
- Communicating with stakeholders: Crisis management involves communicating with stakeholders, such as clients, shareholders, and employees, to keep them informed about the situation and any actions being taken by the organization. In the movie, the firm's executives hold a series of meetings with key stakeholders to explain the crisis and what they are doing to manage it.
- Taking action: The most critical, and sometime scary, aspect of crisis management is taking action to mitigate the crisis. In "Margin Call," the firm's executives decide to sell off the toxic mortgage-backed securities portfolio to minimize the losses and stabilize the company's financial position. This was a fateful decision because it supercharged the contagion while offering the possibility of the saving the firm.
- Learning from the crisis: Crisis management also involves learning from the crisis to prevent similar situations from occurring in the future. In this case, the risk management team discovers that the firm's risk models were flawed and did not adequately account for the risks associated with mortgage-backed securities.
Overall, "Margin Call" underscores the importance of crisis management in preventing catastrophic financial losses and maintaining the trust of stakeholders. It highlights the need for quick and decisive action, effective communication, and ongoing efforts to improve risk management processes to prevent future crises.