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

8th December 2009

MOORE, CARTERCVJ L & ASSOCIATES

Advisers on risk , governance, regulation & business ethicsAdvisers on risk , governance, regulation & business ethicsMOORE, CARTERCVJ L & ASSOCIATES

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 24th 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


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 staff / 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

Board Performance (I)

1 2 3 4 5 6 7 8 9

The Chair clearly delineates his/her role from that of the CEO

The Chair summarises well

The Board benefits from the Chairman’s contribution

The Chair emphasises shareholder relations

The Chair encourages consensus

The Board is attentive to corporate reputation

The Chair is easy to talk to

The Chair displays integrity

[1=Not at all true, 9=Very true]

Chair Executive Directors Senior Independent/Non-Exec Directorsn=50


South Africa Directors

Strategic DecisionsDirectors ...

1 2 3 4 5 6 7 8 9

Work well with the managementteam to realise the goals of the

organisation

Work well with each director of theboard to determine theorganisation’s strategy

Drive the vision

Determine the organisation’sstrategy

Influence understanding of theorganisation’s strategy

Work with the CEO/MD to realisethe goals of the organisation

Work with the Chairman to realisethe goals of the organisation


Chair Other Board rolen=100



QualitiesDirectors ...

1 2 3 4 5 6 7 8 9

Are persistent

Act as a role model for others

Are robust in their arguments

Are inclusive

Take a long term view

Are trustworthy

Display integrity

Encourage challenge





PerformanceThe Chair ...

0 1 2 3 4 5 6 7 8 9

Displays little concern for shareholders

Effectively evaluates the performance of directors

Clarifies the skills/experience required of each director

Utilises well the skills/experience of directors

Determines the spread of skills/experience required on the board

Evaluates the performance of the board as a whole

Encourages feedback on his/her performance

Effectively evaluates the performance of the CEO/MD

Effectively evaluates the performance of the Deputy Chairman




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.

Risk Minds 2009: Risk Survey Presentation

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