Andrew Goldberg, executive vice president, Makovsky & Co.
Continued from Part 1: Leaders and Risk: A Critical Priority for the CEO
Risk-management strategies only work when the following factors come into play:
- The CEO must effectively operate as the chief risk leader.
- The CEO must be actively engaged on the front line and have a very good feel for front line operations and conditions in the company.
- The right people within the firm-the best risk leaders-must be engaged.
- The CEO bakes into his regular business planning-that the people and operations be assessed as often as he would review sales reports, marketing plans and profit projections
When we blend these factors together, we call this a culture of resilience.
An interesting example of where this culture of risk worked, and then disintegrated is JP Morgan. If news reports are to be counted on JP Morgan fit this framework very well-for a time.
During the financial crisis of 2008-10, their CEO hit each of these criteria. But as markets and profitability improved, CEO vigilance and engagement declined. Assessment of trading risks devolved into trading unit itself, which could not resolve its ongoing tensions over taking ever greater risks, but was unwilling to bring the dissenting views to the CEO.
Many CEOs, regardless of industry, will recognize this downward spiral. You start off well in your risk procedures and end badly. After all CEOs are busy, they have to delegate. And the problem with delegation is that somehow, somewhere something goes wrong. As CEO, it is simply not possible to be vigilant all the time.
Or is it possible? You cannot be personally vigilant. But you can be a culture which is more vigilant. You can shape a culture in which you, as CEO, can be more effectively engaged. You can develop the necessary team that can reach out to you with alerts when plans, systems, or external forces are going off-track and who can respond effectively when the Black Swan flies.
