Analysis: KALENGO SIMUKOKO
ABOUT a decade ago, many executives considered risk management jobs as backwater or nice- to- have career cul-de-sacs, which
ambitious professionals tried to avoid. Not anymore. A once-obscure discipline, risk management has squarely hit the executive agenda and a growing number of organisations are adding a new member to the C-suite – the chief risk officer (CRO).
Like the emergence of a fourth person in the Biblical story of Meshach, Shadrach and Abednego, and King Nebuchadnezzar’s blazing furnace, a combination of the 2008-9 global financial crisis, increased uncertainty and greater regulation have unleashed the chief risk officer not only as the fourth C on financial institutions’ C-suites but also as a strong contender for both board and CEO roles. A once upon a time bunch of back office pessimists is now assuming a near- rock star status, especially in the financial services sector.
HSBC’s Group chief risk officer Marc Moses joined the bank’s board at the beginning of 2014 while Santander’s risk chief Matias Rodriguez Inciarte was the bank’s second highest paid executive in 2013. A recent research by Ellul and Yerramilli also indicates that 51.9 percent of financial institutions in the USA now have a chief risk officer as an executive officer while 19.5 percent have a CRO among the top five compensated executives.
But what will the CRO of the future look like? What it take for CROs to satisfy the increasing demands of a broad range of stakeholders – the board, senior management, regulators and shareholders and to maintain the stay in the sun?
The CROs of the future will operate around the globe, in different time zones, and will regularly partner with other areas of the business on growth initiatives. Thus, they will need both a commercial sensibility and a global mind-set.
Ability to understand business issues and high level of numeracy are some of the key skills required in CROs of the future as they will be expected to act as traffic officers watching out for dangerous drivers without stopping the traffic from flowing. In other words, they must act as business enablers who allow their organisations to seize money making opportunities by taking calculated risks within prescribed organisational risk appetite frameworks.
Influencing decisions and obtaining early warning signals on emerging risk issues before they escalate to crises is another essential quality for a CRO of the future. This requires versatility and agility to develop a strong network both within and outside the organisation which should at minimum encompass regulators, the board, fellow executives and peers in the market in order to deepen understanding of the industry and to access best risk practices through informal discussions with peers about shared challenges and events in the market.
The new order of business requires a CRO who is able to communicate risk issues effectively on multiple levels and can influence across the business, tactfully breaking down risk management information into an intelligible and digestible format that stakeholders can easily understand but without feeling lectured.
Fluency in multiple languages and cultural awareness are also key skills for chief risk officers as they may be required to manage risks across multiple jurisdictions.
In pursuing revenue targets, businesses often disregard or relegate risk issues associated with the opportunities being pursued when making decisions. To achieve an optimum risk and return balance, today’s businesses require experienced CROs who are intellectually strong to form their own judgments and operate with an independent mind but without becoming a hindrance to shareholder value creation.
Credit, operational and market risks all impact the capital position of an organisation in different ways. Therefore, today’s CRO needs to possess a good understanding of enterprise-wide risk management (ERM) frameworks and a good grasp of the Basel rules and other regulatory guidelines on capital charges in order to effectively guide the organisation on how best to optimise the available resources and on compliance with regulations.
Tact and diplomacy are the other skills a CRO of the future will require as the ability to assert ideas or opinions, knowing what to say and how to say it without alienating the support is one of the skills required to succeed. Smart CROs set frameworks for risk management and pass ownership or let the daily decisions on what isn’t acceptable to fall with the individual business unit managers and employees.
The CRO’s turn in the sun is here. However, to assure their stay at the top, CROs should realise that the C-suite requires less of technical and functional expertise and more of leadership skills and a strong grasp of business fundamentals. They must add value by helping businesses to make better strategic decisions which deliver competitive advantage.
The author is a financial and economic commentator, certified financial consultant and director at United Bank for Africa (UBA).