As a former management consultant in the financial services practice at PricewaterhouseCoopers in London, United Kingdom and now primarily an academic who teaches strategy and risk management to business students, one of the questions I am asked about the financial crisis is ‘where were the risk managers’?
In the seven and a half years I spent dealing with large, global banks and insurance companies I met all kinds of risk managers. Highly compensated, professional, and thorough were the usual adjectives I would subscribe to the vast majority. However, where the big difference was in how much influence they had in the organization. Most banks would argue that they were in the business of risk – just as insurance companies were in the business of managing risk. The difference between being a ‘risk-taking’ versus a ‘risk management’ business was huge. Walking the floors, speaking to staff members and meeting top-executives it was not too difficult to see who were ‘risk takers’ versus ‘risk managers’. Yet, what is unclear is what made certain risk managers succeed versus others.
Paul Moore, ex-Head of Regulatory at HBOS (a big British Bank) and a whistleblower against the risk management practices at the bank recently gave an interview to the BBC how how risk was managed at HBOS – http://www.bbc.co.uk/pressoffice/pressreleases/stories/2008/10_october/30/money.shtml and http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4592025/HBOS-whistleblower-Paul-Moore-breaks-silence-to-condemn-Crosby.html.
The answers to where were the risk managers becomes clear – they were there but ignored by the marketing and sales function. This is consistent with most financial scandals and crisises in the past. No one was to blame – but yet the warning signs were ignored. Just as the Captain of the Titanic, did not steer the vessel into a iceberg – he just kept on going fast when he was in a iceberg field. Going fast, sometime too fast, is detrimental to any risk and control function. Ignoring advice to slow down – to ensure that everything is in order – is where the minimum risks can suddenly become enormous.
Risk managers need to understand that they can add enormous value to an organization. Their voice needs to be heard and senior management needs to listen to their concerns. Part of listening is accepting the value of the message.
Risk managers have usually been there – hopefully now their voice will be listened to with equal value as other functions – not just control but revenue generation - within the organization.