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New Economy, New Chief Risk Officer

The global financial crisis has only put even greater focus on regulatory and governance issues.

New Economy, New Chief Risk Officer
Risk is a crucial function in the organisational context, underpinning a company’s financial surety in the face of a very complex environment and ever evolving set of regulations.

In fact, keeping pace with the regulatory environment is at least half the battle in risk, which often makes it difficult for the function itself to focus on matters strategic.

The global financial crisis has only put even greater focus on regulatory and governance issues across financial services, but the new world also requires a new, more strategic and value-creating risk agenda. In a pressured economy, the stakes are higher, and Chief Risk Officers (CROs) are increasingly needed and valued at the top table.

Before the global financial crisis, risk was to a large degree a hidden function, perhaps viewed as a necessary evil; a function so technical it really didn’t often seem to fit neatly with the wider organisation. Put simply, that situation is changing rapidly. In Green Park’s recently-completed study of the evolving CRO space, we have engaged with more than 30 leading CROs, as well as other business leaders and stakeholders across financial services. The preliminary results have painted a very clear picture of a role and function in rapid transition ascending the corporate ladder to the boardroom, as well as becoming a strong potential candidate for CEO roles in the age of austerity.

In the past, CROs tended to be viewed as taking charge of a ‘defensive’ discipline, not actively engaged in the organisation at a strategic level. In fact, they were often seen as ‘stifling’, forever holding faster-moving or more entrepreneurial functions (particularly within the front office) back. To a certain extent, regulatory change was a primary driver of the first stage of the transition of the CRO, with relatively complicated rules like those set out in Basel II requiring a far greater level of data and calculation. The risk function became far more complicated and technical, and so the people at the head of risk became more complicated, technical animals themselves.

But now, with the added pressure of the very public and wide-reaching financial downturn, CROs are also required to provide far more genuine commercial guidance, rather than simply distilling and passing on technical information.

Perhaps the biggest indicator of this change is the revised status of the CRO. Where they would formerly report into the CFO, CROs now have their own spot at the boardroom table and normally report directly to the CEO. As trusted advisors, they are not only providing critical decision-making information, they are also taking a strong lead in making the strategic decisions. In the context of organisational structure, it’s a seismic shift in focus.

That shift has itself created a demand for a new type of risk talent: a more savvy, commercial professional who has heavy involvement in strategic development and direction of the organisation and its risk appetite, products and pricing. And with CROs sitting at board level and enjoying far more strategic input, it is now far more likely that they will one day become a CEO themselves. That possibility means that the risk path is no longer seen as a dead end, something that is already being reflected in a shift in the calibre and skill set of CRO incumbents and applicants.

Preliminary findings from a study that we are undertaking in the CRO space have highlighted this new strategic focus. : While 40 percent of CROs indicated their CEOs, CFOs and business leaders still tended to develop and drive organisational strategy without their involvement, half say they have helped guide the process with expert input, while 10 percent have been actively involved in the strategy process and risk appetite. Most risk professionals would have to acknowledge that those results indicate a major shift in priorities and thinking. It is our conclusion that the 40 percent of organisations still not treating risk as a core strategic engine will be swept up in the tide soon enough.

It is an exciting time for risk professionals, who now have more opportunity at strategic level than ever before. It is a time when CROs can lead organisations from the front, and ensure that risk appetite, and the way that companies manage and deal with risk, have a genuine strategic impact.

Written by Raj Tulsiani, CEO & Julian Bentley, Associate Partner - Financial Services Practice at Green Park Interim & Executive Search.
Green Park is a specialist provider of executive recruitment services spanning executive search, interim management and board services.

Mardi 12 Juin 2012

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