Every company in the world deals in risk management and in every company accidents happen. We all say we are going to learn from accidents, but realistically do we? That question is asked by Marc Gerstein, published the book Flirting with Disaster – Why Accidents are Rarely Accidental published by Union Square Press, NY, 2008. Mr. Gerstein taught at Columbia and MIT and lead a management consulting firm.

When an incident is labelled an accident, then the issue is could it be prevented? In a perfect world it would be, but the issue is in many instances, the alarms were ignored by those with the power to disregard them? Why? How do smart, high-powered people get it so wrong?

Mr. Gerstein examines accidents such as Chernobyl, Hurricane Katrina, space shuttles, an Asian tsunami and the monetary crises of East Asia. All these accidents had long buildups and numerous warning signs. They also had many common elements and misguided intuition analysis. The book focuses on how to reduce the chances that anything similar will happen again.

The outlines in the book include the Columbia space shuttle is a story of how organizational pressures, public relations concerns and wishful thinking contributed to a phenomenon known as bystander behavior – the tendency of people to stand on the sidelines and watch things go from bad to worse.

Chapter 2 explores the human biases and distortions in thinking that affect each of us in a way that contributes to risk. Many accidents are natural outgrowths of human characteristics, but that does not mean they are inevitable.

Chapter 3 is about Hurricane Katrina, arguably the best predicted accident in American history. The central question is why more was not done before, during and after a storm that so many saw coming. The chapter is also the irrationality in financial decision making, since it was clear preventing the flooding of New Orleans was less expensive than rebuilding the city.

The nuclear meltdown in Ukraine is an example of faulty design as the source of many disasters.

The chapter on Vioxx, a drug from Merck is how the lure of profits and compromised regulation inhibited the company and the US Department of Food and Drug Administration from need action, despite considerable evidence Vioxx caused death.

Chapter 6 is about the BP Texas City refinery explosion that killed 15 and injured 180 in 2005. There were many warning signs and financial – BP management believed that investing in better and safer equipment and practices was unjustified.

Chapter 7 is about friendly fire caused a F15 shot down 2 Black Hawk helicopters carrying peacekeeping troops.

Chapter 8, the Texas legislators inadvertently destroyed a vast amount of their citizens’ wealth by applying naive commonsense logic to a complex dynamic system.

Chapter 9 and 10 are about Enron and the collapse of Arthur Andersen. The result of the corrosive effects of envy, greed and divided loyalties. It shows the possible consequences when watchdogs become consultants.

The other chapters offer suggestions to do better, because when ignored, most risks do not somehow take care of themselves or cease to be an issue.

The lesson from the book is while not all disasters are preventable, a surprising number of them are.

Linking to dividend paying stocks, in an ideal world, we are thinking prevention and very few accidents happen. In reality, accidents do happen and then the issue could it be prevented and what is the reaction to accident. If the company is involved in manufacturing, as an investor you want to know the safety record, are accidents prevented. When something happens what does the company do or not do? If budgets are cut what items are on the chopping block? How does the company handle risk?

There are more questions than answers, till the next time – to raising questions.