Risk Minds 2009: Risk Survey Presentation

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

Introduction and preliminary points.
Headline findings.
Connections to board effectiveness surveys.
Q & A
Conclusions & recommendations
Appendices:-
Summary the questions and demographics
Agenda

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

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

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

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

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

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?

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

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

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

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

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

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

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

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

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%

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%

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

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)

Board Dynamics (UK) /NEDs Executives v NEDs

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)

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)

Russian Directors

South Africa Directors

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

Board Dynamics (Australia) Board Performance - shared/cohesive views

Q & A panel session
Q&A

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

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.

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

Survey questions and demographics
Appendix

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

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?

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?

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.

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Risk Minds 2009: Risk Survey Presentation

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Risk Minds 2009: Risk Survey Presentation — Presentation Transcript