Risk management has key part to play in shaping economic development

Everything from the Brexit vote to the thought of either Clinton or Trump becoming US president was on the agenda as risk managers attending the Institute of Risk Management South Africa’s (IRMSA) annual conference in Johannesburg. With the theme of “Future Fit”, some 450 risk managers heard of the risks of not keeping pace with the dramatic changes happening on a worldwide basis. While the technological advances of recent times have been dubbed the 4th industrial revolution and have been well aired, the risk managers from South Africa were reminded that the one thing that will always set them apart is their humanity and empathy.hideThey were also reminded by Dr Zweli Mkhize, treasurer general of the African National Congress (ANC), (a man touted by some as a future president of South Africa) that risk managers needed to work to prevent risks occurring as much as they needed to look back at react to events that have already happened. With that in mind, he said it was important to consider the overall aim of society – to create a happy and secure place for all, where there is respect for all and people can look after themselves. While that might sound like utopia, he said, it was everyone’s role to strive to get as close to that as possible. However, he admitted, this would be affected by wider economic and political issues. In South Africa itself “the challenge is the issue of poverty, unemployment and inequality”. Assuring the audience that President Zuma would not be standing for a third term as leader of the ANC, he said it was important for the government to provide a stable environment which would encourage foreign investors to make long term investments, safe in the knowledge that they would be able to achieve the hoped-for returns into the future. Buoyed by better than expected results in the first quarter of this year, he said the government is well aware that more needs to be done. The biggest issue for both South African businesses and foreign investors is whether or not the rating agencies will decide to downgrade South Africa in their next round of ratings for the country, due in November. Nicky Weimar, senior economist at Nedbank, ran through the likely scenarios with the IRMSA audience, highlighting the need for political stability, if foreign investors are to stay and to encourage the rating agencies not to make that downgrade move – something which would plunger South Africa into junk status. The ultimate cost of that would be higher debt repayments, something the struggling economy can ill afford, she said. South Africa is not in an economic bubble – a message that cam across loud and clear from both Mr Mkhize and Ms Weimar, who agreed that the slowdown globally would not help, particularly any slowdown in demand for commodities from China – a key export market for the African country. Although Ms Weimar feels the worst of the decline might be behind South Africa, she is no predicting a return to boom times in the short term. She would like to see the government cut spending to bring the deficit down – something that would make it hard for the rating agencies to make their downward move in November. From a private sector point of view, greater flexibility in the labour market would help, she says. Overall, however, much will depend on the strength and value of the Rand – she hopes that the country will manage to avoid the November downgrade – something which should help keep the Rand steady and that will help the state of the local economy too. Digital changes continue to drive risk management landscape The message from insurers is that they are happy to help develop the right cover to protect businesses and give risk managers workable risk transfer options. Speaking at the IRMSA conference, Vincent Vandendael, director, global markets at Lloyds of London, urged risk managers, brokers and insurers to work together in addressing the risk transfer challenges posed as the world moves into the 4th industrial revolution. “We all need to adapt,” he said, adding that insurers need to ensure they provide services in a way that their customers want to receive them. Mr Vandendael ran through the massive changes that have already happened but also the huge changes ahead. He talked of the way that Africa has led the world in some technologies – pointing to mpesa as a forerunner of many mobile money solutions worldwide. The good news, he said, is that it continues to expand as a workable solution across Africa – launching in Ghana in the coming months, for example. Another major change which will affect many African economies is the reducing cost of international transfers. Again new technology has paved the way for an app which is set to revolutionise the cost and ease of international transfers. Bearing in mind that some economies see up to 50% of their GPD coming from overseas money entering their country, the significance of that is not to be under-estimated, he stressed. By reducing the cost of the transfers, much more money will reach its intended target, making a real difference in terms of available spending money in the local market. Technology is also playing its part in shifting assets from tangible to intangible, said Mr Vandendael. In 1975, it was estimated that globally 85% of business assets were tangible, by 2015 this figure had plummeted to just 16%, with a staggering 84% now intangible. Mr Vandendael said “What does this mean for a risk manager in a company stuck in the past? “It also means, for South Africa, two-thirds of jobs could be done by computers in the next two decades,” he added. However, it was not all doom and gloom as he said it is about making the shift and adapting to the impending changes. Insurers too will need to adapt. For example, the significant threats of the future will be manmade rather than from natural catastrophe and those manmade, or technology, events will also be the main drivers of economic growth in the future. Insurers will have to match their product development with those shifts in requirements if they are to thrive, he stressed. Risk managers need to evolve to be fit for future Risk management is one of the fast developing sectors for many businesses. The concept of risk management may have been around since the emergence of mankind but, in a business context, it remains one of the most recent roles to have been created. Evolving out of health and safety and a need to remain compliant, risk management has become a far more integral part of the business. However, as Michael Ferendinos, chief risk advisor at the Institute of Risk Management South Africa (Irmsa) told delegates at the annual conference “I have been in a situation where the board didn’t know what risk was about and why we were doing risk management. Some companies are still going through that learning process. “As a risk manager you might only get a few minutes in a board presentation and we need to get away from risk workshops where half the people fall asleep. It is tough to be selling the concept of risk rather than actually doing your job.” He argues risk managers need to get away from the feeling that this is a new concept, particularly as it does become more complex. “The next time an executive asks you what risk management is, you can be assured that it is not new and that it is an inherent human activity.” His words were echoed by Bonolo Sekhukhune, head: communication, integrated operational risk at Standard Bank, who said risk managers face enormous challenges in driving the concept and messages through their organisation and at the same time keep on top of the many emerging risks. Likening the role to that of musicians, she said the most successful and long lasting musical stars had several traits in common. They learnt their instruments, played to their strengths, owned their greatness, were eager to please, stayed hungry and were not afraid to be unique. Many of those things were equally applicable to risk managers who need to understand their craft, sell it to others but also be aware of their value to the business while not being afraid to be a lone voice if that was what was required. She also said it was vital for risk managers to understand their audience. “When talking to general staff, you may have 30 minutes to get your point across and you may need to repeat your message, but with the executive you may have just five minutes to sell the same message. You need to recognise that and handle that,” she said. Ms Sekhukhune also cautioned against long-winded emails that may say a lot of things but might mean the main message is lost early on. “Think about what you are saying and what you want them to hear,” she suggests. Not being afraid to challenge decisions is key, says Laura Mallabone, a director at Satarla. Often, she says, decisions are taken quickly because the executive wants to take advantage of certain market conditions, however the downside of making that investment is that the business could be left with all the costs but not the opportunity if it disappears as fast as it arrived. Not being afraid of voicing an unpopular view is critical if risk managers are to correctly play their part in the process, she says. “What information do directors need to make those decisions they need to make,” she asks. “As risk managers we don’t have crystal balls but we are trying to avoid having the business make bad decisions or have confirmation bias.” Remember your humanity However, it is not all about systems and technology, as Julia Graham, deputy chief executive officer and technical director at the UK’s Association of Insurance and Risk Managers (Airmic), stresses. “This is not all about technology but also about people and how they use technology,” she says. Ms Graham says risk managers are at a crossroads, as are the businesses they work within. “You have a choice, you either step forwards into the world or step backwards and do things as you have always done them.” In her 20 years in risk management, Ms Graham has seen enormous change but the greatest shift has been between those tangible and intangible risks, as outlined by Lloyd’s Mr Vandendael. It always surprises her, she says, the way in which company executives can move around tangible assets with such ease, yet struggle to get their heads around intangible risks. “Leadership needs to think the unthinkable,” she says and it is part of the risk managers’ job to identify some of those and get the executive thinking. “Boards have to be better about future gazing than they are today,” she suggests, adding that the risk management role is evolving to help them to do just that. “You as risk managers need to understand and to research to help you gauge what you are dealing with, so you can pass those message son,” she said. Referring to research done by Airmic, Ms Graham says for the first time cyber related risks are both at number one and two in the top ten risks facing businesses. Cyber has been split into business interruption and cyber theft and are considerably ahead in the threat list of the number three risk which is reputational risk. The first physical risk is down at number five – evidence of the switch between tangle and intangible risks that face the majority of businesses. But Ms Graham says risk management is still not embedded in all organisations as much as it should be. The hopeful signs, however are that firms are getting better and valuing risk managers more than ever – something she believes will be vital for their ultimate survival in a new world order in which many executives admit makes their eyes glaze over instead or firing them up.

Risk management has key part to play in shaping economic development

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