Risk Management Watch: Risk, Access to Capital Top CFO Concerns
The financial crisis has intensified the significance of risk management among CFOs, according to a new survey of finance executives at major U.S. corporations. In fact, the survey, conducted last month by Towers Perrin, finds that risk has surpasses short- and long-term access to capital on the list of CFO priorities. “CFOs and their teams are making decisions in the wake of this crisis that will affect not only their own companies, but the economy as a whole,” said Celina Rogers, Director of Research at CFO Research Services. “The results of this survey show that senior finance executives are certainly concerned about funding their companies in the short term, but the long-term consequences of the crisis - its effect on companies’ ability to carry out strategic plans, and its risk management implications - are also first-order issues to emerge from this crisis.”
Executive search firm, A.E. Feldman, says a growing number of companies are seeking finance chiefs who understand the capital markets, have expertise in managing a balance sheet, and who understand and can manage enterprise-wide risk. A.E. Feldman reports that risk management jobs are evolving to better manage initiatives to ensure that business objectives are met, losses are minimized, business processes are improved and greater accountability is achieved. A.E. Feldman also notes that financial and risk professionals with expertise in processes for assessing credit and counterparty risk and liquidity risk are in demand along with professionals with experience in restructuring and litigation support that can provide advice on how to respond to the evolving market conditions and subsequent regulatory changes.
Risk Takes Center Stage
Risk management practices have the undivided attention of the 125 CFOs surveyed by Towers Perrin. According to the study, although the majority of those polled acknowledged that the crisis would dampen profit expectations and leave a potentially lasting dent in the world economy, only five respondents feared a major negative impact on their financial results.
Nevertheless, the vast majority, 73%, of respondents expressed concern about their own companies’ risk management practices and ability to meet strategic plans. That compares to 61% of CFOs who expressed concern about raising short-term capital. In addition, 62% of finance executives blame poor or lax risk management at financial institutions as a major contributor to the current financial mess. Nearly as many — 59% — cited the complexity of financial instruments, and 57% blamed financial market speculation.
Thus the study concludes finance executives, regardless of industry, perceive a need to invest in more effective risk identification, measurement and management procedures.
“The majority of reports have characterized the crisis as a financial crisis, and clearly on one level it is because companies’ access to capital - whether they are in the financial sector or otherwise - is severely strained right now, and the end is not yet in sight,” said Prakash Shimpi, Towers Perrin Principal and Head of the firm’s Enterprise Risk Management practice. “On another level, however, this crisis exposes material gaps in risk management - particularly operational risk - and the companies surveyed acknowledge that they will need to retool their risk management practices,” Shimpi adds.
Moreover, in a related finding, 42% of those polled predict a more energized involvement by boards of directors in risk management policies, processes and systems, and a comparable percentage foresaw intensified employee-level engagement.
The survey also notes that despite the evident impact of the current financial crisis on liquidity and consumer confidence, 55% of the CFOs agree that they plan to put their risk management practices under a microscope and that this investigation will in many instances reach all levels of the organization, from the board room to the shop floor.
Earlier this year Standard & Poor’s announced the inclusion of an explicit ERM component in its rating of corporate securities…that call is being echoed by America’s leading finance executives. According to S&P, “This enterprise risk management initiative is an effort to provide more in-depth analysis and incisive commentary on the many critical dimensions of risk that determine overall creditworthiness.”
In keeping with that idea, the Towers Perrin data shows that effective risk management depends on effective risk culture - or genuine awareness and control of risk throughout the organization, and genuine line-of-sight accountability. Although many respondents advocated better regulation of lending practices and derivatives, a still greater number focused on heightened vigilance by boards, management, investors and even regulators to risk management practices and risk-related incentives.
Are you a CFO or working in Risk Management? If you want to grow your career or your company’s bottom line, contact Mitch Feldman, President, A.E. Feldman now. Find out more about CFO and Risk Management jobs today!
