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.

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

Published in: Business, Economy & Finance
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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
  • Risk Minds 2009: Risk Survey Presentation

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