Times are changing: The demise of the old style Chief Risk Officer

Since the Financial crisis, the role of the Chief Risk Officer has come under more intense scrutiny than ever before. Regulatory demands, already evolved from Controlled Function to Senior Managers Regime, have the CRO as a pivotal point in the organisation, responsible for governance. This is completely understandable given the dire breakdown in corporate responsibility, especially in the Financial Services sector pre-2008. But what of the future? Is the current incarnation of the CRO fit for purpose, or does the CRO role need to change?

 

Technocrat vs Business Executive

This is a difficult question, and one with different answers depending upon the maturity of an organisation’s risk model. Whilst it’s imperative the Chief Risk Officer has strong risk-based ethics, it must not be overlooked that an organisation needs to succeed commercially as well.  A number of clients who seek support with senior Interim Risk roles, have similar challenges. They have felt that an existing or departing CRO has stifled business opportunities with a blinkered approach to governance, and one even referred to the “Black Hat” syndrome. In these cases – two this year already – we were able to assign strong Risk Interim Professionals, whose role was to ‘reset’ the 3 lines of defence model, and begin a process of reviewing the risk appetite, enterprise-wide, across the business. In addition, an added benefit lay in the fact that they have been able to pave the way for a permanent successor, allowing that person to come in ‘clean’, with no perceived baggage related to a potentially difficult transformation. This is where the flexible resourcing model comes into its own –  build, buy, rent.

 

A wider business challenge?

This is now considered a serious challenge at Board level. A recent Deloitte report asked more than 300 C-suite and Board members from around the world to share their views. Interestingly, Chief Risk Officers were not part of the report. It noted that “nearly 9 out of 10 organisations recognize that risk management should focus on value creation—not mere risk avoidance”. In addition, 58% said in the future, CROs need to devote significantly more time to strategy, over double the number CROs currently spend.

In addition, Boards are now coming up against a shortage of strong, senior risk professionals with the right commercial attitude. As the latest EY/IIF Bank Risk Management survey reported: “banks are now firmly focused on the difficulties of operationalizing the three-lines model in a way that delivers both effective risk management and cost efficiency …… they also expect talent shortages across all three lines in areas”. This has increased the demand for Interim Transformational CROs and other senior Risk Professionals, as they bring experienced, considered, quick and effective change to organisations in transition, allowing a more considered process to appoint the permanent successor.

But what of the Regulator?

The FCA has been vigorous in its drive to ensure that the Financial Markets can never return to the pre-2008 practices, and that consumers are protected as much as possible. However, it has also recognised that for organisations to be successfully commercially viable, and ultimately benefit their staff, shareholders, members and the economy, there has to be an evolution in the CRO mandate. Only recently, Jonathan Davidson, Director of Supervision for Retail and Authorisations, said at the Building Societies Conference: “My main message to you here today, is that, although change brings risk, it also brings opportunity”. He went on to encourage engagement with the regulator, saying “please maintain a two-way dialogue with us – especially if you are looking to pilot innovative products. Do consider engaging with our Innovation Hub, which can provide additional support, or consider testing your product ideas through our sandbox.”  Anecdotally, we have also been told by two clients in recent searches that their choice of a senior risk individual was influenced by comments from the regulator, giving the ‘nod’, so to speak, to our Interim appointments on the basis that they want to encourage entrepreneurialism as well as governance.

 

Summary – the rise of a new breed of Chief Risk Officer

In summary, the CRO of tomorrow requires a wider, more strategic set of skills to fulfil the leadership role that is required. No longer will the role be solely focused on Risk downside, but one where they play a key part in the commercial success of the business. CROs need to shift the focus from Compliance to Customer, from Controls to Efficiency and lastly, but most importantly, from the Transactional to the Strategic. As part of this transition, businesses need to ensure they have the right people at the right time, and when gaps appear, utilise the strong Interim market across Governance, Risk and Compliance.

In conclusion, one of our clients, the CEO of a large Insurer, summed it up nicely saying: “we had a problem, but wasn’t sure what it was. It turned out to be a people issue, with old style thinking from our risk team frustrating our growth. Fortunately, the Interim that Norman Broadbent supplied us with got to grips with it quickly, made significant changes and put in place a solution – we are now on the right track”.

To find out how Norman Broadbent Interim Management may help your business or to discuss this topic further, please contact Mike Davies, Director of Insurance for a confidential and inital conversation.


Email: mike.davies@normanbroadbentinterim.com

Mobile: +44 (0) 20 7484 0067