The risk of being a Dodo–comment

There are big differences of course between the risk landscape and corporate exposures faced by risk and insurance managers in South Africa or Mozambique to those in Germany or France for example. Differing legal systems, political, social, economic and even religious priorities, the very form of the natural resources to hand and of course climate all combine to ensure that no two countries are the same. This is a good thing and makes life more interesting, particularly as companies expand their footprints to seek new sources of production, distribution and revenue from new markets. It also makes going on holidays and business trips worthwhile. But our South African report proves for sure that, despite the local wrinkles, risk managers are actually staring at the same set of risks wherever they are based and need to apply the same basic principles of risk identification, measurement, management and transfer to realise their corporate goals.hideOne thing that has been made crystal clear by the African report, CRE’s ongoing Risk Frontiers survey of Europe’s leading risk managers and the Risk Distribution report on Europe’s leading brokers (both to be published in full in October), is that one of the biggest risks currently faced by the world’s risk managers is actually internal. Most of the Risk Frontiers roundtables have been dominated by talk of the big business risks that companies are grappling with as they seek out new markets. Then the discussions have inevitably moved on to the effect that this has upon the fundamental role of the risk manager as the corporation tries to work out how to manage the downside and take advantage of the upside. Exactly the same discussion naturally occurred in the Johannesburg and Cape Town roundtables and I can guarantee that the same thing would have occurred in the US. It is also occurring, again not by design, as we prepare our next two big market reports on Brazil and Latin America and the Gulf Cooperation Council states and wider MENA region to be published in October and November. The bottom line is that supply chain, reputation and cyber risk are all very important areas that risk and insurance managers are having to tackle all over the world. Cyber, in particular, appears to be taxing even the best brains in the risk community and this is why we are holding our Risk Frontiers Cyber Risk seminar, sponsored by Chartis, in Brussels on September 27. But these are tactical matters essentially and what really seems to be worrying and exciting most risk managers currently in equal measure is not so much what they need to do about such ‘emerging’ risks but rather how they need to cope with them. Arguably, in this sense, risk management, as a distinct discipline and profession, may well be in danger of extinction. On the surface this sounds like just the sort of twaddle that journalists all too easily trot out to try and grab readers’ attention. The profile of risk management is higher than ever before as governments, regulators and corporations the world over wake up to the fact that it was actually poor risk management that led to the recent financial crisis in the first place and try to prevent the next one by writing a bunch of new rules. This process is exacerbated by the fact that all these governments, or at least those in North America and Europe, seem to have concluded that the way to get out of this mess and more importantly avoid the next one is to accelerate the process of globalisation of trade so that we can all trade our way out of it. The other big positive side-effect of this theory is that globalisation will spread wealth to corners of the planet that hitherto have not seen much of it and thereby stamp out political trouble spots that can have nasty side-effects such as terrorism. But for this master plan to work it is now clear that globalisation needs to be very tightly risk managed if it is going to reignite growth on a truly global basis, or at least in Washington and Brussels. On paper this looks like great news for individual risk managers and the profession as a whole as they sit right at the heart of the whole thing. But, as has been made clear by our research in Africa and for the Risk Frontiers survey, the bottom line also seems to be that truly successful enterprise-wide risk management has to be delegated downwards, sideways and upwards to really work. The best risk manager in the world would therefore ideally teach all their colleagues how to properly identify, measure and manage risk based upon a risk appetite agreed by the board in a transparent and auditable way and, hey presto, he or she can then retire to the garden or beach. Job well done. Some would argue that retirement is not really an option because a board level chief risk officer is still needed to make sure that all the good set-up work is properly followed and not rapidly forgotten under the pressure of endless sales and investor targets. But is this not the CEO’s job as she or he is watched over by properly trained and risk aware non-executive directors? On this basis, arguably, what could happen is that corporate risk management may reach a global nadir and then rapidly disappear as the risk managers, once so popular, return to focus on the fourth element of the chain—risk transfer—and get back in the cupboard.

The risk of being a Dodo–comment

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