Risk Minds 2009: Risk Survey Presentation
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Risk Minds 2009: Risk Survey Presentation

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Andrew Kakabadse, Paul Moore and Dominic Carter gave this presentation on a risk survey they conducted at Risk Minds, the world's largest risk management conference on 8th December 2009....

Andrew Kakabadse, Paul Moore and Dominic Carter gave this presentation on a risk survey they conducted at Risk Minds, the world's largest risk management conference on 8th December 2009.

Findings include:
- executives to blame for financial crisis
- cultural problem at banks NOT a regulatory problem (the cost to benefit of risk taking is not weighted correctly;
- remuneration too high; culture does not encourage effective change management
- Executives should have a right to tell their side of the story though
- full report due in Jan 2010 so check back at http://www.kakabadse.com

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  • Australia-Summer 2009-Presentation by Professor Andrew Kakabadse Page
  • Australia-Summer 2009-Presentation by Professor Andrew Kakabadse Page
  • Australia-Summer 2009-Presentation by Professor Andrew Kakabadse Page
  • Australia-Summer 2009-Presentation by Professor Andrew Kakabadse Page
  • Australia-Summer 2009-Presentation by Professor Andrew Kakabadse Page
  • Australia-Summer 2009-Presentation by Professor Andrew Kakabadse Page
  • Australia-Summer 2009-Presentation by Professor Andrew Kakabadse Page
  • Australia-Summer 2009-Presentation by Professor Andrew Kakabadse Page

Transcript

  • 1. The RiskMinds Risk Managers Survey 2009 The results of an anonymous survey of risk professionals into the causes and implications of the 2008 banking crisis Paul Moore, Professor Andrew Kakabadse & Dominic Carter 8 th December 2009
  • 2.
    • Introduction and preliminary points.
    • Headline findings.
    • Connections to board effectiveness surveys.
    • Q & A
    • Conclusions & recommendations
    • Appendices:-
      • Summary the questions and demographics
    Agenda
  • 3.
    • 563 responses used for analysis. Independently analysed by Cranfield
    • Total responses 615. 95 attending this conference.
    • The responses come from around the globe number as follows:-
      • UK – 43%
      • US/ Canada – 10%
      • Mainland EU – 14%
      • Rest of the world – 17%
    • 47% over 10 yrs experience; 30% senior managers.
    • Bankers 25% ; asset managers 6.6% ; insurance 11% ; combination 20% ; other sector 22% .
    • More analysis by demographic breakdown being completed.
    • Detailed report available in January. Base data available next week.
    Preliminary points – Andrew Kakabadse
  • 4.
    • The inception of the idea for the survey.
    • Please complete & have others complete the survey up to 24 th Dec.
    • If you want a copy of the detailed report, you have two options:-
      • Complete the survey and the email at the end requesting results.
      • Give us your card at the event after this presentation
    • Event at Cranfield School of Management in February.
    • We will give our own conclusions and recommendations only after Q&A.
    • Results are top 3 / bottom 2 “most important” and in same order as survey
    A couple of other things before the results
  • 5.
    • Macro causes
      • Top three
        • Individual and / or collective greed – 23.8%
        • Failures in risk management - 16%
        • Wholesale funding and easy availability of capital – 15.8%
      • Bottom two
        • Accounting standards – 3.2%
        • Global circumstances beyond anyone’s control - 0.5% ......so only three people agreed with Gordon Brown and other politicians
    Headline findings – Macro causes
  • 6.
    • Contributors to failures in risk management and governance of risk
      • Top three
        • Remuneration - 21.91%
        • Risks reported but sales prioritised – 21.54%
        • Culture inhibited effective challenge - 15.36%
      • Bottom two
        • Inadequate reporting / challenge – 3.2%
        • Auditor oversight – 0.9%
    Contributors
  • 7.
    • Who was primarily accountable?
      • Executive – by a country mile! 65.62%
      • Regulators - 7.43%
      • Government - 7.05%
      • You but only - 5.5%
    • Note 10% of respondents were exec and they said the same thing!
    Accountabililty
  • 8.
    • Did respondents have major concerns in advance?
      • Majority said yes 51.8% ....why only 51%!!
      • The majority of them said by Q1 2007 - 46.3% !
    • With whom did you raise your concerns
      • Top 3
        • Majority with colleagues 53.8%,
        • Line manager 39.7%
        • Audit / risk committee 23.1%
      • Bottom two
        • NEDs 9.7%
        • Regulators 7.9%
    Did you have concerns and did you raise them?
  • 9.
    • Did you feel inhibited in raising your concerns when you should have?
      • Yes 24% . No 76% .
      • But (NB You also said culture inhibited effective challenge!)
    • How supportive is the culture in your organisation?
      • Generally – Supportive or very – 63% ; Somewhat or not supportive 38% .
      • In raising effective challenge to status quo / group think; 46% and 54% respectively.
    • Note:
      • You did not feel inhibited but your challenge was ineffective.
      • Respondents often rate their own organisations better than others!
    Tell us about the culture in your organisation
  • 10.
    • In which area are changes most required?
      • Culture (including vision, values, management style, operating principles) - 55.43%
      • Structure (including framework, processes & controls, org. design) - 27.1%
      • People - (including skills, knowledge, competence and commitment) - 17.4%
    The focus for internal change
  • 11.
    • You assessment of risk management capabilities in your organisations?
      • Risk Managers – average rating 2.18 (9, 78, 241, 187)
      • CROs - average rating 2.11 (17, 18, 194, 163)
      • Line managers 1.44 (Very worrying) (60, 221, 191, 50)
      • Regulators 1.28 (very worrying) (93, 195, 163, 34)
      • NEDs 1.23 (Very worrying) (89, 212, 126, 34)
    • How important is a professional institute as for lawyers and accountants?
      • Somewhat to very supportive – 83.2%
      • Not supportive – 16.8%
    Capabilities
  • 12.
    • What internal structural changes are required?
      • Top three
        • Better designed remuneration – 30.7%
        • More rigorous oversight and assurance programmes – 12.6%
        • Dedicated Risk Committee – 9.3%
      • Bottom two
        • Employment protection – 4.5%
        • CRO reports to NED – 2.6%
    Internal structural changes
  • 13.
    • What regulatory rule changes do you think are required?
      • Top three
        • Global harmonization - 16.4%
        • More prescription around credit and liquidity risk management – 11.1%
        • More specific guidance, standards on effective risk management – 10.9%
      • Bottom two
        • Report to NED - 8%
        • Stricter NED requirements – 4.3%
    Regulatory rule changes
  • 14.
    • Changes to supervisory practice adopted by regulators are required?
      • Supervision of the risk management culture and ethics in firms - 33.3%
      • More rigorous supervision of the effectiveness of internal risk management – 27.5%
      • Regular tripartite meetings between CRO, Chair of Risk Committee & regulator – 25.6%
      • Formal sign-off of oversight and assurance plan – 7.4%
    Regulatory supervisory practice
  • 15.
    • Changes to the operation / management of regulators?
      • Higher calibre personnel – 47.3%
      • Regulators accountable in law for their failures – 21.9%
      • Independent body to investigate regulatory failures – 14.9%
      • Supervisory resource – 7.9%
      • Minister accountable – 4.3%
    Operation and management of the regulators
  • 16.
    • Your views on regulatory philosophy locally and internationally.
      • Principles based; 74% for international and 58% for national
    • Should there have been a detailed investigation to find out what happened?
      • Yes! To establish wrong-doing 58% ; On a truth and reconciliation basis 74%
    And finally
  • 17. Risk Survey Actions Conservatives Radicals CRO reporting to NED 15% 55% Employment Protection for Risk Managers – invite challenge 23% 89% Reduced reliance on Maths Risk Models 32% 78% Regulate Credit and Liquidity Risk Management 22% 95%
  • 18. Risk Survey Actions Conservatives Radicals Stricter authorisation for NEDs 23% 90% Risk reports to NED for independence 15% 70% Sign off by Regulator to oversight/assurance plan 15% 75% Supervision of risk culture/ethics 49% 89%
  • 19.
    • Demographics
    • 10 surveys;
      • 2001; 2003/4; 2005/2006; 2007/2008; 2009/2010
    • US/UK/Australia/Turkey/Ireland/Germany/Russia/Belgium/ China/France/South Africa/Scottish Public Services
    • Interviewed NEDs, CEOs, Chairs, Executive Directors
    • Spread of responses
      • Idiosyncratic
      • Context significant
    Board / Chairman Research Page
  • 20.
    • UK/Ireland – Executive/Non Executive balance
    • Increasing importance of NEDs
    • Selection criteria for NEDs unclear
    • Few penetrating insights (NEDs) – 85% NO shared view on competitive advantage of company
    • Role of SID opaque/irrelevant
    • Some inhibition
    • Approach to governance/corporate reputation varies
    • Greater Sarbanes Oxley orientation
    • DEVELOPMENT MINDED
    • Better use of search
    • Size of NED portfolio – great variation
    Board Dynamics (UK)
  • 21. Board Dynamics (UK) /NEDs Executives v NEDs
  • 22.
    • Average Companies (Majority)
    • High inhibition
    • Defensiveness
    • Limited use of NED/external director capabilities
    • Appointed from network
    • Discouraged from talking to s taff / management
    • External Director portfolio extensive
    • Strategy/board dynamics driven by CEO / President / Chairman
    • Dismissive of CSR
    • NOT DEVELOPMENT MINDED
    • Legal culpability
    • Sarbanes Oxley - Gone too far May induce more ‘corruption’
    Board Dynamics (USA)
  • 23.
    • Well Led Companies (Minority)
      • Still 76%, President / CEO / Chairman
      • Less inhibition
      • Link skills of External/Independent Director to strategy
      • Use of search consultants
      • Appointment from network
      • Robust boards sack President/CEO
      • Legal culpability
      • Responsive to CSR
      • Robust dialogue
      • More development minded
    Board Dynamics (USA)
  • 24. Russian Directors
  • 25. South Africa Directors
  • 26. South Africa Directors
  • 27. South Africa Directors
  • 28.
    • Respect for BOARD
    • NED FUNCTIONALITY HIGH
    • Highest use of search consultants
    • Selection criteria for NEDs clearest
    • Shared view on
      • Competitive advantage
      • Differentiation
    • Individual NED – most balanced portfolio
    • Greatest Board role/contribution/added value
    • Greater clarity on value of governance/corporate reputation
    • Most development minded
    • International outlook
    • Little/No attention to CSR
    Board Dynamics (Australia) Company
  • 29. Board Dynamics (Australia) Board Performance - shared/cohesive views
  • 30.
    • Q & A panel session
    Q&A
  • 31.
    • Executive are blamed so they need a right of reply. Lets ask our executive to complete the survey and report the results.
    • Culture is key to effective risk management and regulatory supervision.
    • If the focus of the regulator should be on the effectiveness of internal risk management, we need to set clear standards as a benchmark for best practice.
    • There is good support for the creation of a professional body for financial sector risk managers. Lets set one up dedicated to the financial sector.
    • We need to work with the regulators on the calibre of staff – could we set up a secondment programme with them?
    Conclusions and recommendations for discussion
  • 32.
    • We need to train our regulators, NEDs and line managers in risk management.
      • Should all these have to spend a period in the risk department before moving on (e.g. Goldman Sachs?) So, you can’t drive the F1 car until you have spent time working with the telemetrists and engineers?
    • There needs to be a further and more fundamental think about how governance and how boards and execs / non-exec operate.
    • We need global regulatory harmonization on a principles based approach
    • We should lobby for a proper investigation on a truth and reconciliation basis to inform the public policy debate.
  • 33.
    • Lets put a top team together to work on these with the support of Cranfield – (e.g. CRO from a top bank in all the major financial centres) – to develop policy, tools, methods which can be used internally and by regulators to make this change and feed into the public policy debate?
    • Who wants to volunteer?
    Lets work together
  • 34.
    • Survey questions and demographics
    Appendix
  • 35.
    • Causes
      • Macro causes
      • Factors contributing to risk and governance of risk failures
      • Who was accountable?
      • Did you know the crisis was coming and when?
      • Did you raise concerns and with whom?
      • Did you feel inhibited from raising concerns?
    Survey questions and demographics
  • 36.
    • Internal changes required
      • In which area are changes most required:-
        • People,
        • Culture
        • Structure / Process?
      • Questions about the culture in your own organisation
      • Assessment of the capability in risk management of key players and importance of a professional body.
      • What structural changes are required?
  • 37.
    • External regulatory changes
      • What changes to the rules are required?
      • What changes to supervisory practice / approach by regulators are required?
      • What changes to the operation / management of regulators are required?
      • Your views on regulatory philosophy locally and internationally.
    • Final questions
      • Should there have been a detailed investigation to find out what happened?
      • Any other comments you have?
  • 38.
    • Demographics
      • Gender, age,
      • Years of experience in risk management, academic and professional qualifications
      • Membership of professional institutes
      • Role and involvement in risk management and Level of seniority
      • Sector - banking, asset management, insurance, other
      • Country
      • Size of organisation
      • Area of risk management in which you are involved – credit, market, operational, enterprise, regulatory, non-exec.