Risk profession needs to move onto front foot and sell value–Switzerland

Despite the sharp focus on risk management since the onset of the credit crisis in 2007 and the raft of risk-related rules and regulations that came about as a result, it seems that non-financial corporations still do not always understand the positive benefits that risk management can bring to an organisation. The Switzerland-based risk managers agreed that to an extent this is because European companies in all sectors continue to struggle to hit their margin targets. There is still a very sharp focus on cost control and thus limited resource for the risk management function is available, they said. Front line managers and board members generally realise that risk management is important and should be on the agenda. But they simply do not have the time to add another, still rather loosely defined and largely misunderstood, function to their ‘to do’ list.hideThe risk managers conceded that the lack of formal, internationally recognised risk qualifications and a truly joined up effort from the risk management profession to sell its benefits does not help. The good news is that progress is being made. Each of the risk managers who took part in this year’s Swiss discussion has added wider risk management responsibilities to their core insurance function in recent times. This occurred either because the individual risk manager identified a need or was called upon during a crisis when senior management finally woke up to the requirement for active risk management. Unfortunately, it seems that when the crisis abates, the interest in risk management also fades away. Risk management remains a relatively hard sell in the corporate sector and a more proactive effort to promote the profession at an individual and collective level is clearly needed. The danger is that the remit for risk management falls into the lap of internal audit, becomes a tick box compliance exercise and loses all potential value. Stuart Martin, Head of Group Operational Risk & Insurance at Bombardier Transportation Financial Services, the Canada-based global transport and engineering group, said that his primary responsibility is insurance. He is, however, naturally becoming more involved in enterprise risk management (ERM) because of his dual role as operational risk manager and previous experience within UK FTSE companies managing the risk management process. He stated that within Bombardier Transportation, ERM sits within the audit function which, in his opinion, does not deliver a proactive approach but a compliance procedure. Sabrina Hartusch, President of SIRM and Global Head of Insurance at Triumph International, one of the world’s leading underwear and lingerie firms, said that there is no formal or holistic risk management operation within her firm. This is not unusual, she said. Ms Hartusch has found herself taking on more and more responsibility for risk management simply because nobody else does. She has volunteered when she believes she has the time, resources and expertise to help out. “I recently set up a travel risk management system and am now working on an outsourcing risk management system for the IT services department after my CEO asked about it. This is good for me. I simply raise my hand and can then put things in place,” she explained. Dominik Ebneter, VP Risk & Insurance Management at Swissport International Ltd, the global airport service provider, said that he similarly has also taken on a rising role in risk management through natural evolution rather than a mandated decision from above to set up a formal structure and ERM programme. “We are getting there but it’s not perfect. This is a step-by-step process. You have to develop a culture and a mindset. If you do not push it at all, it could go nowhere. What you learn in university about having to set a framework, policy and processes and put it all in place from the top down—that just does not happen as straightforward in reality. You have to fix things and fine tune them as you go in a pragmatic manner,” he explained. That is of course until something goes wrong and then risk management springs right up to the top of the agenda, pointed out Mr Martin. Mr Ebneter said that in this environment it is very often up to the risk manager to educate fellow managers and the board about the value of risk management. But it is not easy in such a tight market, he added. “I have managed to increase awareness and people do get that this is important. But when it comes to resourcing or investment into a proper tool people tend to say let’s think again. We are in a low margin market and the focus is very much on the cost base,” said Mr Ebneter. Mr Martin said that the risk management profession and its representative bodies have failed to take advantage of a series of major manmade and natural catastrophic events over the last 20 years to really ram home the value of risk management. “There have been a number of big events over the last two decades that have really brought risk management to the forefront, but then it has been downgraded again. I probably blame the various risk management institutions for this. There have been opportunities to get on the front foot but the profession failed to take the opportunity and it fell to the auditors and became tick box rather than strategic,” he said. Mr Ebneter agreed with Mr Martin. He pointed out that overcoming this challenge is not easy because risk managers always have to compete and deal with other, seemingly more pressing, day-to-day corporate concerns. Hans Mazenauer, Managing Director of European Risk Frontiers project sponsor HDI-Gerling in Switzerland, said one of the reasons why risk management is not an easy sell to the board or other managers is because it can be perceived as being all about risks and costs rather than opportunities. Mr Martin said that this was an important point and stressed the need for risk managers to sell the upside as well as the downside of risk management. “The old adage that there are two sides to a coin is relevant here and these sides are risk and opportunity. If you are analysing a risk then you should also see opportunities. If you cannot establish the right balance and relationship between risk and opportunity then you will always have problems and just be asked the question: Is it insured?” said Mr Martin. One of the key messages for risk managers to convey to their colleagues and bosses when attempting to explain the value of the discipline is that they are facilitators not risk owners. This point has to be stressed over and over again, they agreed. “I always explain that every manager is a risk manager because every decision has to be based on an evaluation of the pros and cons, opportunities and weaknesses before action can be taken based on an educated decision. It needs to be clearly understood that the risk manager is the facilitator of this process, supporting management and helping them make the right decisions,” said Mr Ebneter. Ms Hartusch added that risk managers also need to be prepared to play devil’s advocate and challenge decisions made by colleagues and bosses. Maurizio Micale, ERM and Insurance Management Director of STMicroelectronics based in Geneva, agreed with his colleagues that the profession appears to have failed to take advantage of the ‘opportunity’ presented by the crisis of 2007. It has allowed risk management to become viewed as more of a tick box tool than the ‘fully embedded’ management resource it should be, he said. He pointed out that a potential barrier might be a perception among management that the ERM process can be a ‘threat’ because it could be used to apportion blame after an event. “It can be viewed as a double-edged sword because if a risk has not been identified and treated properly then risk management can be blamed…so it can be tricky to ‘sell’ the profession,” said Mr Micale. The Switzerland-based Italian said that he refuses to blame lack of resource for any lack of understanding of the value that risk management can bring because it really ought to be embedded in the culture of the company. “I say it is not me that has to identify the risk and assess it. I am there as the enterprise risk manager to facilitate the process and bring the discussion at the high end to help managers find solutions. You have to be prepared to make people think. Management has to understand that risk management is here to help them think outside the box and conceive the unconceivable,” said Mr Micale. In his opinion the understanding of the true value of risk management will come in time. “For sure, in five years time there will be more maturity. There is a lot of pressure from shareholders, regulators and other stakeholders for business to be managed on a risk basis. Look back 10 to 15 years and you will find a lot of things have changed,” he said.

Risk profession needs to move onto front foot and sell value–Switzerland

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