Risk Management Watch: CFOs, CROs in Demand as Companies Rethink Risk
Risk management will continue to be in the spotlight in 2009. Companies have never been more motivated to revisit risk management, according to CFO.com. A recent report argues that risk management is a discipline that is being taken far more seriously these days thanks to the current financial crisis. In fact, a survey of 125 CFOs in September found that 62% of finance executives blamed the crisis on risk management’s inability to understand complex financial instruments. Moreover, nearly 75% of the survey’s respondents said risk management now outranks in importance such issues as long-term and short-term debt financing, relationships with financial institutions, pension-plan asset allocation, and the ability to secure equity financing.
But as CFO.com also points out, “It’s not enough to have risk management, you have to practice risk management.” Executive search firm, A.E. Feldman, says risk management jobs are evolving to ensure that business objectives are met, losses are minimized, and greater accountability is achieved. The financial crisis has also intensified the significance of risk management among CFOs. A.E. Feldman adds that CFO jobs are front and center. Right now the demands of the job are undoubtedly growing and opportunities are opening up for experienced finance professionals. The firm says a growing number of companies are seeking finance chiefs who can not only understand the capital markets and have expertise in managing a balance sheet, but also those who understand and can manage enterprise-wide risk. 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
As credit markets tighten and the economy slows, directors are pushing for a clearer picture of what to expect. But what makes the current situation so dire, according to CFO.com, is the way in which so many major risks are converging simultaneously, including the credit crisis, volatile commodity prices and soaring government debt. The report adds that none of these risks are lost on CFOs who are now driven by their boards to address them.
Corporate directors in most industries have gotten risk religion, says Henry Ristuccia, U.S. leader of Deloitte’s governance and risk-management practice in the Northeast according to CFO.com. According to Ristuccia, “More external directors are asking senior management: What are the company’s major risk issues? What are the dimensions of governance and risk management? What levers and tools does the company have in place for risk management?”
Large firms often have Chief Risk Officers (CRO) or even dedicated departments. In fact, a slew of banks have recently added a CRO to their top ranks to proactively manage risk and strengthen internal controls. Risk management practices have the undivided attention of CFOs. In fact, a recent survey of finance executives at major U.S. corporations conducted by Towers Perrin, finds that risk has surpassed short- and long-term access to capital on the list of CFO priorities. The survey also found that CFOs are now more interested in systematic solutions to risk management than they have been in the past. Nearly 50% of respondents expect to implement broad changes to their risk-management policies and practices, from the shop floor to the boardroom.
CFO.com notes however that CFOs say formal enterprise risk management (ERM) programs won’t succeed if they don’t mesh well with a company’s culture. The report quotes Floyd Chadee, the CFO of StanCorp Financial Group, as saying, “I hope that one of the things that comes out of this experience is a sober look at what the industry means by ERM.” Chadee says part of that would hinge on a move away from sales hype in favor of programs that cater to unique corporate cultures and risk appetites.
Breaking Down Silos
In a report focusing on “The Risk Intelligent Board,” Deloitte & Touche argues that corporate boards can address risk more effectively - intelligently - by looking at all business issues through a risk lens. “Risk ought to be a core issue of every full board meeting,” said Steve Wagner, Managing Partner of Deloitte’s U.S. Center for Corporate Governance. “At a minimum, this will address the pervasive problem of risk management occurring in silos. Boards need to define risk, broaden their view of risk and adopt a framework over which risk governance activities occur. By doing this, boards will be setting themselves on a path to becoming risk intelligent, driving growth and increasing shareholder value.”
CFO.com adds that existing risk-reporting processes must break down silos that impede risk oversight and prevent a broader awareness of risk throughout the organization.
But the report also notes this will be a process that will not happen overnight. CFO.com quotes Chadee as saying, “It’s not something that you can just decide to do in a week. It builds through the consciousness of the organization and becomes part of the DNA of the organization.”
Are you a CFO or working in Risk Management? If you want to grow your career or discuss your company’s talent needs, contact A.E. Feldman’s President, Mitch Feldman today.
