Risk is the Name of the Game in 2008
From climate change to rising oil prices to turmoil in the credit markets, the list of risks faced by major corporations around the world continues to grow. Facing a host of potential challenges, new research shows that progressive firms must understand and manage risks and financials with a more holistic approach.
Risk management has evolved into an offensive field in which risk-adjusted information is used to determine corporate strategies, business initiatives and asset allocation. According to executive search firm, A.E. Feldman, risk management is the name of the game. The firm believes that in the coming year risk management opportunities will grow significantly.
The recent subprime lending crisis served as a harsh reminder that financial risks are deeply and globally interdependent, according to new research conducted by TowerGroup, a financial services research and advisory services firm. TowerGroup says that firms must work to integrate the management of financials with operational and other risk types, and corporate leaders must understand the changing variables in today’s interconnected world. The firm concludes that proactive leadership, in which CFOs and risk managers play key roles, is critical to achieving integration and sustaining competitive advantage.
Financial institutions should also evaluate more inherent risks, not just those required by external auditors, according to a recent study conducted by global accounting, tax and business advisory firm, Grant Thornton. The study contends that directors and audit committee members may oversimplify their institutions’ financial statement risks unless they take additional inherent risks into account, including regulatory issues such as compliance, the power and influence of management and board oversight. The study also suggests that frequent complex transactions and significant changes to operations can increase exposure to risk.
Now, JPMorgan Chase has joined the growing list of banks with new Chief Risk Officers. This role at large financial institutions has come under increased scrutiny. In the wake of the credit crisis, banks have had to write down billions of dollars in assets.
Earlier this month, Citigroup named a new Chief Risk Officer, and formed a new risk management advisory committee. Merrill Lynch, which announced $8.4 billion in write-downs last month, added the new role of Chief Risk Officer in September. That same month, Lehman Brothers said its CFO will become the Global Head of Risk Management as of this month.
Looking ahead, A.E. Feldman sees growing potential for risk management jobs to open up in 2008 as banks seek to expand and reorganize their risk management teams.
