Walter Stevens
From: Three Horizons [info@threehorizons.net]
Sent: 09 November 2009 02:45 PM
To: Three Horizons
Subject: 3H Newsletter - Nov '09
Attachments: image001.jpg; image017.gif; image018.jpg; image002.jpg; image005.jpg
Evolving Branding and Identity ERM Quo Vadis?
This edition of the Three Horizons newsletter spells out the evolution of the After the major ‘risk’ events of the past number of
business into something with a different “eco-system” - more offerings, a larger drive towards risk management within firms, of
“footprint”, and a different more complex, richer, home environment. We hope regulatory requirements. The development path o
you will agree that the future looks bright for the core business. these events and regulation, have been describe
the academic literature and anecdotal evide
The rest of the newsletter focuses on the type of areas that Three Horizons will concentration on compliance with statutory reg
continue to develop, as a research platform and a stimulant for fresh thinking. It driver for risk management within an organizat
aims to challenge accepted ideas in a number of areas, from ERM and Risk motivation for the management of risk.
Management, Governance, Customer Knowledge, and the use of the nebulous
market! Risk as a strategic issue, worthy of the attention o
all other stakeholders, has also become increasin
We hope you find it stimulating and informative. Please feel free to contact us and within society in general. The rise of Enterpr
with questions, ideas or suggestions. sophisticated approaches to financial risk by bo
organizations and an emphasis by regulators on r
importance. ERM however is a relatively recent
Izazi Analytics not been fully implemented in most organizations.
little academic research about its success or
Three Horizons is evolving! Together with Izazi Solutions, we have agreed to progress.
form a company called Izazi Analytics. Izazi is a leading provider of SAP
banking solutions, both in South Africa and internationally. The new company Thus although there are many “principles” and “
will be aimed at providing Business Analytics and Risk Solutions, as we do implementation, especially ERM, is in many res
currently, but also to provide solutions around the SAP transactional banking convinced of its importance, but uncertain how to
and treasury management solutions. the “tricks of the trade” of the successful pract
community.
Why such a move? The Izazi Group will provide Three Horizons with access to
a much larger footprint, both client-wise and geographically. Three Horizons What to do? How to go forward? Below are a few b
provides Izazi with access to our unique skills set, that will enhance Izazi’s assist in a successful implementation:
ability to deliver value to their client base. • Realise that its not mature: but little is
Izazi Analytics will focus solely on environments dominated by SAP • Don’t over-sell the benefits
solutions? Not at all. In fact, we will remain product agnostic in many of our
activities, and will continue to provide independent advise where required.
• Realise that implementation is a multi-discipl
Where will we be based? We have moved location, from Rivonia to Izazi’s
offices, in Hyde Park. • Use the “stick” of regulation where necessar
driven
Will we have an identity? We will operate as risk consultants and system
configuration specialists via the brand name and entity of Izazi Analytics, with a • Celebrate small wins, but don’t over-reach
specific, competence-based focus. However our client base is completely
aligned with that of the rest of Izazi, and therefore we will cooperate on • Plan the work and work the plan
marketing efforts and in some cases on delivery. Most other aspects will fall
within the overall Izazi branding: we will develop a web presence for inclusion • Use reporting to highlight champions
as part of the overall Izazi web footprint (at www.izazi.com), not standalone; our
emails and business cards will emphasise Izazi.
• Don’t reinvent corporate structures, infiltrate
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What are our plans for growth? We intend to approach this cautiously,
focusing initially on training our existing staff on the SAP products, and having
discussions with both Izazi and Three Horizons clients. We will then grow the Mission Statements
business appropriately.
Here are four mission statements:
Good Grades? You Betcha! 1. It is our job to continually foster world-class
quickly create principle-centred sources to mee
An exciting new website, www.ultrinsic.com, has gone live and has expanded its 2. Our challenge is to assertively network eco
betting options for U.S. college grades in some interesting ways. Students can empowerment so that we may continually
now bet not only on their grades in particular classes but also on their career infrastructures.
Grade Point Averages! 3. To improve lives by mobilizing the caring powe
4. Respect, integrity, communication, and excelle
They can also buy insurance for poor grades and make a variety of different
"multicourse" bets. The development of the website adds an interesting finance Two are from real organizations. Two were cr
element to the academic experience, and speeds up the rate at which students Mission Statement Generator. Can you guess whic
feel the burdens/benefits of their academic performance.
No’s. 1 and 2 are courtesy the Dilbert Automatic
Although it doesn’t state it directly, Ultrinsic either must already have or must No. 3 is the mission statement of the United Way,
develop an effective model for predicting student performance, in order to price
and hedge effectively. Such a predictor model should create a lot of very useful Here are a couple of “Goal Statements” f
data for a huge variety of purposes. Given the woeful South African student recognisable and more successful:
performance, such a model may be even easier to build, but have a number of • Microsoft came up with probably the most we
different inputs.... every desk and in every home, all running Mic
• Amazon has an excellent one for its Kindle,
in any language, all available in less than 60 s
The Evidence
Both statements do something crucial: They quan
Banks that were more responsive to shareholders performed much better just want to sell software -- it wants its software
before the financial crisis and much worse during it, a new study* demonstrates. home. Amazon doesn't just want you to buy a boo
less than one minute.
A pair of finance professors (Bocconi and Stulz) examined the returns and
governance styles of banks before and during the crisis. They discovered that
many of the banks considered "better governed" according to standard models The Game Changer
of corporate governance, fared far worse during the crisis. Additionally,
A recent study by *Initiative, entitled The Ga
• Banks with the highest returns in 2006 had the worst returns during “Consumers in Western Europe and the US
the crisis. More specifically, the banks in the worst quartile of performance permanent shifts in their media consumption,
during the crisis had an average return of -87.44% during the crisis but an attitudes to brands as a result of the changing
average return of 33.07% in 2006. across these countries are very similar, with the e
economy has been less affected by the global dow
• In contrast, the best-performing banks during the crisis had an average
The research indicated that 70% of respondents
return of -16.58% but they had an average return of 7.80% in 2006. One
has now stabilised with some signs of optimism g
hypothesis is that the attributes that the market valued in 2006, (e.g. a
consumers have been directly impacted by the e
successful securitization line of business), exposed banks to risks that led
changed their behaviour as a result.
them to perform poorly when the crisis hit. The market did not expect
these attributes to be a source of weakness for banks and did not
The researchers categorised four distinct consum
expect the banks with these attributes to perform poorly as of 2006.
people are coping:
Two possible conclusions from this, that go against the developing “regulatory
1. ‘Confidently Secure’ (11% in Western Europe
backlash”:
impacted by the downturn, carrying on life as n
bank and security to comfortably see the
1. Bad bonus incentives didn’t drive banks to take risky bets in asset backed conditions.
securities. It was a widespread mistake about the values of those assets. 2. ‘Live for Today’ (26%) - Not impacted and carr
And that mistake was shared by pretty much everyone - bankers as well as savings cushion but take a positive ‘Live for To
investors in banks. 3. Hurt but Optimistic’ (39%) - Directly impacted
Optimistic that things will improve soon.
2. Investors in banks were demanding the kind of investment profile that 4. ‘Feeling the Brunt’ (24%)
caused a lot of trouble for the banks. That suggests that all of the
shareholder democracy, bonus claw-back, and in put into executive The quarterly labour force survey (QLFS), releas
remuneration wouldn’t have made much difference. More importantly, they indicated that 484 000 jobs were lost in the thir
are useless when it comes to avoiding a future crisis. quarter losses exceed the 475 000 jobs shed in th
making it highly likely that the economy will shed
Their conclusion in their words: The quarterly labour force survey (QLFS), release
showed that with 4.2 million people now
“Overall, our evidence shows that bank governance, regulation, and balance unemployment rate has increased to 24.5 perce
sheets before the crisis are all helpful in understanding bank performance earlier.
during the crisis. However, banks with more shareholder-friendly boards, which
are banks that conventional wisdom would have considered to be better But taking into account the number of discoura
governed, fared worse during the crisis. Either conventional wisdom is wrong, million people who want to work but had given u
as suggested by Adams (2009), or this evidence is consistent with the view that now stands at 5.8 million people.
banks that took more risks rewarded by the market –perhaps because the
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market did not assess them correctly ex ante – before the crisis suffered more
during the crisis when these risks led to unexpectedly large losses. Strong The expanded unemployment rate, which include
evidence supportive of the latter interpretation is that the performance of large was therefore 31.9%, up from 29.7% last quarter a
banks during the crisis is negatively related to their performance in 2006. In
other words, the banks that the market rewarded with largest stock increases in The impact of losing over a million jobs at our alre
2006 are the banks whose stock suffered the largest losses during the crisis.” may indicate that the proportionate response acr
vary from that of the Initiative study.
*Why Did Some Banks Perform Better during the Credit Crisis? A Cross-
Country Study of the Impact of Governance and Regulation. Andrea Beltratti, Their fundamental point nonetheless holds true: a
Università Bocconi; Rene M. Stulz, Ohio State University - Department of risk management and customer analytics has to r
Finance; National Bureau of Economic Research (NBER); European Corporate not only impacting on customer wealth and incom
Governance Institute (ECGI). July 13, 2009. Charles A Dice Center Working of profound consumer change.
Paper No. 2009-12
*Initiative (www.initiative.com) is a medi
company.
Disclaimer
Three Horizons makes no representation and gives no warranty as to the accuracy of the
information in this document and accepts no liability for any errors, misprints or omission herein Tel: +27 11 275 0327
(whether negligent or otherwise). Three Horizons shall not be liable for any loss or damage Fax: 0866 547 848
whatsoever arising as a result of any person acting or refraining from acting in reliance on any
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