The
1990s: The Decade
of Risk Management
(Part 3 of 3)
New Tools
Risk managers should
strive to develop "receptors" within their organizations. Receptors
are individuals for whom specific risk management information will have
particular value and who will ultimately serve to fulfill the risk management
mission statement. Additionally, the risk manager can anticipate special
action from a given receptor.
Once the fabric of the
receptor network is established, the risk manager can patch individuals in
and out of the matrix to serve a specific risk management goal. A receptor
may supply information, help the risk manager investigate, influence others,
integrate risk management principles, or interpret issues within his/her area
of expertise - all within an established matrix constructed by the risk
manager.
Otherwise, effective
stimuli are ineffectual without properly developed receptors. Risk managers
must recognize potential receptors and anticipate a set of predictable
actions from each receptor. Receptors must be sensitized to risk management
issues long before they are asked to join the risk manager's matrix team.
This should be considered a major part of any risk manager's job.
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Creating Opportunities By Changing
Corporate Perceptions
Titles, first
impressions and buzzwords are the rule in our fast paced business world.
Whether driven by business-like expediency or by human psychology, people
like to sort, categorize and group the abstract into familiar constructions.
It is convenient to group related functions under one or two-word titles.
Risk management titles
and functions are not commonly recognized or understood by Corporate America.
The title "Risk Manager" will gain recognition and prestige with
its adoption by established disciplines such as banking, engineering and
health care.
Traditional risk
management functions cast a negative image, while failing to accurately
describe modern risk management in practice. Perhaps, the function should be
changed precisely
because the traditional
function has failed to take root in the consciousness of Corporate America.
The function must be upgraded to match the growing acceptance of the title.
By this process, risk managers will be evaluated within the business
organization.
With the exception of
Officer, there are few powerful mental images projected within the typical
business organization. Risk managers are presently placed at or near the
bottom of the corporate hierarchy. The paradox is striking when one considers
that risk management routinely deals with issues affecting the virtual
survival of the corporation.
The problems associated
with the title of risk manager were created, in part, by the fact that an
overused business title (manager) is used in conjunction with an abstract
term (risk). Other business titles developed out of a small group of
traditional staff functions, including legal, tax, personnel, treasury,
marketing and field operations. Titles associated with these disciplines are
tightly defined, easily recognized and universally accepted.
While it is quite
common to find a risk management position reporting to the CFO or general
counsel, the reverse is never true, even though a risk manager may be a
financial expert or an attorney. With the number of unrelated disciplines now
claiming the "risk" title, it is conceivable that the title
(perhaps without its current group of practitioners) may leapfrog the
traditional hierarchy of corporate functions. The term "risk
management" has become so popular, a synthesis of risk related functions
may congeal into a quasi-risk management title that could be assumed by the
individual who formerly held the title of, say, general counsel. Perhaps, the
CEO (chief speculative executive officer) would require an alter ego, the CRO
(chief risk officer). The concept conveys an appealing symmetry and a
democratic sense of checks and balances. The concept is not without
precedent: Energy firms have appointed environmentalists to their boards of
directors; nuclear utilities have created risk management committees with
authority over operating officers; and other business organizations are
adopting titles like chief information officer. Some "risk professionals"
now report to the office of the president.
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Creating Opportunities By Changing the
Function
Risk managers manage risk;
but what does that mean to Corporate America? The question has been
complicated by a plethora of newcomers, each claiming the risk management
title as their own. From interest rate hedges to personal health care
maintenance, it appears the name is associated with every aspect of
day-to-day life.
It is thus very
difficult to discern the function from the title risk manager. Yet, there is
no better title. Risk managers must learn to tolerate the high level of
public misconception that currently exists. After all, if the principles of
risk management can be as broadly applied as the new mission statement seems
to indicate, then it is reasonable to expect that different Brands of risk
management will germinate in unlikely places. The process is healthy and
should be encouraged. It enhances, rather than dilutes, the corporate risk
management function.
Risk managers should
aggressively attempt to change top management's perception and the perception
of Corporate America at large. Meaningful change only can be realized by
changing the function, not the title. The reality is that risk managers
cannot change their own titles. It is fruitless, and possibly detrimental, to
our best interests to try! Title changes are always awarded from the top
down. Risk managers must learn to change their function from the bottom up.
If the function can be
expanded and perceptions enhanced, then risk management, itself, will be
integrated into the upper management decision making process. As experienced
risk practitioners, risk managers will be given unprecedented opportunities
to directly contribute. The next decade will be marked by the fulfillment of
the risk management mission. At long last, risk managers will become part of
the process.
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