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The global banking system is facing a severe liquidity crisis: In the first half of 2008, major financial institutions wrote off nearly $400 billion, causing banks around the world to initiate emergency measures. Similar crises have occurred within recent memory: Think of S&Ls, the dot-com bust, and Enron. Risk is, quite simply, a fact of corporate life-but because risk-management research has increasingly emphasized mathematical modeling, managers may find it incomprehensible and thus shy away from powerful tools and markets for creating value. Buehler, Freeman, and Hulme, all with McKinsey, describe the evolution of risk management since the 1970s, show how new markets have changed the landscape in both financial services and the energy sector, and explain what it takes to compete in the current environment. To demonstrate how significant a factor risk can be when incorporated into strategy and organization, they take the case of Goldman Sachs-which, despite its reliance on highly volatile trading revenues, has so far avoided the big write-offs that have afflicted its leading competitors. The authors believe that this is because Goldman takes the antithesis of the typical corporate approach-its culture embraces rather than avoids risk. And, they say, Goldman very efficiently employs all four of the following factors: quantitative professionals, strong oversight, partnership investment, and a clear statement of business principles, with emphasis on preserving the company's reputation. Staying on the sidelines of risk management may have shielded some companies from crisis, but it has also prevented them from growing as quickly as they might have. In their companion article, "Owning the Right Risks," the authors outline a process that will enable executives in any company to incorporate risk into their strategic decision making.

In the 1970s a revolution occurred in the field of corporate strategy. A boom in mergers and acquisitions launched new professions in M&A banking, M&A law, and strategy consulting, and companies started to focus on owning businesses in which they had a competitive advantage. At the same time, another revolution occurred in how financial services companies understood, bought, and sold risk-described in the authors' companion article in this issue, "The New Arsenal of Risk Management." Now these two revolutions are coming together to trigger a third in the corporate approach to risk management. Engineering and dynamically managing a company's risk portfolio has become the organizing principle for strategic choice. When companies focus on the risks for which they are naturally advantaged, they can typically support higher debt levels and save on operating costs. McKinsey's Buehler, Freeman, and Hulme describe five steps to help corporate managers adjust to the third revolution: 1) Identify and understand your major risks; 2) decide which risks are natural; 3) determine your capacity and appetite for risk; 4) embed risk in all decisions and processes, including investment, commercial, financial, and operational; and 5) align governance and organization around risk. TXU is one company that has already successfully adapted. Following the 2002 deregulation of wholesale and retail electricity markets in the U.S. state of Texas, TXU embarked on an ambitious risk-return restructuring program that relied on sophisticated risk-management tools to quantify its risk capacity. The program led to share price increases that created more than $32 billion in value before the company was taken private in the largest leveraged buyout in history.

In a letter to ABN AMRO in February 2007, TCI, a British hedge fund with a small stake in ABN AMRO, stated: "We believe that it would be in the interests of all shareholders, other stakeholders and ABN AMRO for the Managing Board of ABN AMRO to actively pursue the potential break up, spin-off, sale or merger of its various businesses (or as a whole)...". Eight months later, after a head-to-head battle with Barclays, the bank was finally sold to a Royal Bank of Scotland-led consortium, which included Banco Santander of Spain and Fortis, the Belgo-Dutch group. It was the largest financial services transaction ever and the first time that bidders had attempted to break up a large lender. This case looks at the events that led up to the takeover and examines some of the strategic decisions of the recent past which may have triggered the process. It discusses the financing and timing of the deal in the turbulent financial markets of 2007 and raises questions about the future. What were the risks of splitting the bank? Could this complex task be achieved successfully? Learning objectives: This integrative case gives participants an overview of the different aspects of a takeover: finance and control, integrated risk management, strategy. Issues for discussion include strategic lessons for the future of banking in Europe and worldwide; strengths and weaknesses of the two bids regarding valuation, synergies, timing, deal structure, concerns regarding integration planning and implementation.

For most of 2007, a public dispute was going on between Danone and Wahaha over their joint venture in China. The "antagonism" had even led to the Chinese and French presidents calling on both companies to resume "peace talks" and find an amicable solution. The Danone & Wahaha case looks into how this ten year plus and once "sweet" partnership turned sour. It serves as a basis to further explore what could have been considered as a "win-win" partnership; how it was formed, further developed and how to anticipate and mitigate certain risks when doing business in China or other emerging markets, for example, how to define growth and the share of risks and rewards. It then examines what will happen next and the future outlook or likely scenario for Danone's businesses in China. Learning objectives: The key learnings in this case will apply to how to make all partnerships work, whether with Chinese partners or not, those based on principles of equality and mutual benefits, tolerating minor differences and reach mutual understandings.

When crucial financial estimates rely on judgment, companies can minimize their risk by turning to appraisers, actuaries, and evaluators, whether internal, external, or a combination.

MBA student Monroe Davies is asked by a potential employer to determine his own compensation package. This case follows Jim Hummer, President and CEO of Whole Health Management and Davies through a unique recruitment process that raises questions of compensation and employee incentives, negotiation strategy, and human resources management.

Supplements the (A) case.

Supplements the (A) and (B) cases.

Online business scams are rising because the Internet offers a perfect medium for con artists, who know that the money's in business. Companies can meet that threat with three defensive strategies.

A two-party negotiation between an Agent representing a new author and an Editor at a large Publishing Firm. The exercise involves a 1-issue, zero-sum negotiation concerning the advance on royalties that the publisher will pay to the author.

A two-party negotiation between an Agent representing a new author and an Editor at a large Publishing Firm. The exercise involves a 1-issue, zero-sum negotiation concerning the advance on royalties that the publisher will pay to the author.

This is an abridged version of note NR14-04-1771.0. On December 11, 2001, China became a member of the World Trade Organization. Many say the 1999 US-China bilateral trade agreement and the vote in Congress to permanently establish normal trade relations with China paved the way for China''s WTO accession. Even though China was not a WTO member, the United States had granted China Most Favored Nation trading status (MFN) since 1979. However, under US law, China''s trade status required an annual renewal that often became a focal point in Congress for protests over human rights issues, security concerns, and the growing US trade deficit with China. In order to support China''s WTO accession, the United States had to commit to non-discriminatory treatment by agreeing to make China''s MFN status permanent-known as PNTR or Permanent Normal Trade Status-thereby giving up the right to annual reviews. The vote in Congress generated a lobbying battle on Capitol Hill of historical proportions. Why did PNTR pass? What role should trade agreements play in promoting human rights, enhancing domestic reform, encouraging the rule of law, and promoting national security? How were the US-China bilateral agreement and the PNTR vote linked to other key negotiations? What is the role of trade in advancing America''s economic interests? (Revised August 2005) HKS Case Number 1771.3

This is an abridged version of case NR15-04-1736.0. The Agreement on Trade-Related Intellectual Property (TRIPS) at the World Trade Organization (WTO) was the most comprehensive and far-reaching international agreement on intellectual property rights ever made. Perhaps the most widely discussed TRIPS-related issue was the debate over the impact of the agreement on efforts to improve public health in the developing world. Some developing countries held that TRIPS patent rules prevented them from having access to essential medicines, concerns that were intensified by the dramatic rise in the incidence of HIV/AIDS. Nonprofits such as Doctors without Borders accused drug companies of putting "patents over people." Negotiations ensued at the WTO to address these concerns. HKS Case Number 1736.3

Six different business disputes, all in the shadow of pending litigation, are described. Students are asked to recommend the appropriate method of dispute resolution (mediation, arbitration, mini-trial, etc.) for each one, depending on the circumstances, especially to assess likely barriers to unassisted negotiation.

This is an abridged version of note NR15-02-1661.0. The focus of international trade negotiations was once quotas and tariffs - how much of a particular product could be imported and the duty levied at the border. As the world economy has experienced deeper integration, attention has shifted away from tariffs and quotas to the complex policies and rules that affect the international movement of goods, services and investment. Such policies include protections for intellectual property rights. Negotiated during the Uruguay Round, the 1994 Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs) significantly broadened the reach of the trading regime by establishing .a comprehensive set of global trade rules for intellectual property. World Trade Organization (WTO) members are now obliged to adopt policies that protect patents, trademarks, and copyrights. While countries remain free to provide even more protection than the TRIPs requires, the agreement sets minimum standards. 1661.3

Concierge Club is an early-stage company looking to raise $6 million of additional funding in a Series A financing in December 1999. Mary Naylor, the founder and CEO of Concierge Club, is a dynamic and energetic leader who has previously received backing from a Washington, D.C.-based angel investor group. She established her business in 1987 as an on-site "brick and mortar" concierge service providing concierge services to commercial office buildings, residential buildings, and corporate headquarters. With the subsequent growth in on-line technology, Naylor is seeking funding in 1999 to become the "first nationwide concierge service to offer full Internet capabilities to companies seeking to offer these services as a customer or employee benefit." The case includes materials from Concierge Club's business plan and pitch to investors, which allows students to assess the reasonableness for her forecasts, the level of competition, the adequacy of the $6 million in funding, and the value of the company. A key issue is whether the company can perform on the national level with a service based on exceptional local knowledge and assistance. The case is designed as a negotiation exercise in which teams of students are assigned to play the role of investor and entrepreneur (Naylor).

To buy a desirable Martha's Vineyard property, Robert and Sally Franklin must craft a bidding strategy informed by their assessment of their competitor. The "A" case sets up the situation and bidding history to date, describes how they assessed their valuations and probabilistic views, and leaves them with a key decision. The B case describes their choice as well as the twists and turns leading to the conclusion.

To buy a desirable Martha's Vineyard property, Robert and Sally Franklin must craft a bidding strategy informed by their assessment of their competitor. The "A" case sets up the situation and bidding history to date, describes how they assessed their valuations and probabilistic views, and leaves them with a key decision. The B case describes their choice as well as the twists and turns leading to the conclusion.

iBasis examines the development of a long-term relationship between equipment manufacturer Cisco and start-up iBasis, a voice-over-internet wholesaler. Questions arise for iBasis founders as to how best to build a beneficial relationship with the much larger partner. How aggressive should they be in their pursuit of specialized equipment designs from Cisco? How should they protect their own intellectual property? After several years of market success, and several relationship defining mechanisms (from informal to a memorandum of understanding to specific equipment contracts), the partnership is tested with the dot-com bubble bursting. Not only is the relationship at risk, but iBasis' very survival is in question.

Few deal makers have been at it as long, and at such a high level, as Bruce Wasserstein, the chairman and CEO of the financial advisory and asset-management firm Lazard. In this edited interview, two HBR editors explore how he creates value as a manager, as a deal maker, and as a counselor to CEOs. Wasserstein, who has been a major figure in mergers and acquisitions for more than 30 years, talks about attracting and managing talent, building and sustaining a knowledge business, sizing up industries and companies, and crafting advice to help CEOs unlock value. At the heart of his approach is a singular ability to dissect a strategy's underlying premises in order to figure out whether a plan or deal "makes sense." Part of that determination involves understanding the broader context: Where is the industry going? What external factors will affect it? Such sensemaking informs every move Wasserstein makes, and it has paid off handsomely. In his career, he has helped broker more than a thousand deals, worth hundreds of billions of dollars. His intellect, creativity, and doggedness are what allow him to pick apart the most complex problems and devise novel solutions. In an age of specialization, he recognizes the importance of connecting the dots; he draws on the knowledge and skills of creative generalists as well as industry and regional specialists when setting up and executing deals. Wasserstein studied at Harvard University's business and law schools and at Cambridge University, helped lead First Boston's M&A practice, cofounded the investment-banking firm Wasserstein Perella Group, and then joined Lazard, which he famously took public in 2005 after disassembling a century and a half of family ownership. He is the 2007 recipient of Harvard Law School's Great Negotiator Award.