The role of risk management

“Another debate for the boardroom is value of risk management, particularly as everyone in the organisation should be inherently doing it. Does one need a Chief Risk Officer is a question that is often raised,” said Antonella da Cunha, Group Risk Manager for Capespan. Ms Da Cunha argues that mature companies need a chief of risk management to facilitate the process that enables customer confidence, investor interest and corporate governance. The value of risk management is thus an intangible asset to the balance sheet. “One finds that investors in the business are always particularly interested in risk management as it is a crucial part of sustainability and risk reporting. Risk management within the corporate sector in South Africa is very high on the agenda. It’s about investor confidence and corporate governance, risk management has an active role to play in governing the business,” she said. The risk department within an organisation has become a necessary function in light of regulation and corporate governance reports such as Basel III and King III respectively.hide“If you take the risk management department away the business will still continue to function. But inherently to survive you need risk management within your organisation,” said Jan Delport, Head of Operational Risk at Capitec Bank. He explained that documents such as King III have made the risk management process formal within a business, but the feeling of many risk managers is that it is a function that has always been integral to the survival of a business. Inherently the CEO has always carried out risk management but in a different format than it is now proposed for appointed risk managers. “Risk management is about translating what you are doing to what the investors expect. They want to understand your business before they invest. The regulators are also big stakeholders—they want to see the processes, and not just the outcome,” he said. Warren Young, Chief Risk Officer (CRO) at Sanlam Investments, explained that, as an investor, you want to know what the risks are and that they are being managed. “There needs to be an evidential process which feeds into the board. As a stakeholder you want to know that your interests are protected—in a fund the risk management becomes highly important to them,” he said. A large part of risk management is reducing incidents, losses, and improving the efficiency and quality of processes and operations. “As CRO I have a direct line to the chairman of the board to advise on risk management. It is the risk manager’s place to think about how to build a more resilient organisation and withstand possible major impacts; this is where we add value,” he added. However, there are some cases where senior management is not sold on the idea of dynamic, enterprise-wide risk management. Mr Delport explains that for smaller players, it might not be viable to have so many separate non-revenue-generating business units. “If you think clinically, sustainability, risk management and compliance overlap so much. There can be a lot of conflict that goes right up to CEO level. These are some of the issues that need to be addressed,” he said. Another question that also arises in the industry is whether a risk manager of a global corporation should also be in charge of insurance management or should the two functions be clearly split? Mr Young doesn’t think that they should necessarily be split because the combined role is a way of both mitigating catastrophic risk and ensuring the business is covered. “Some firms, for example transport companies, can be managing a lot of claims at once and will need a significant amount of manpower just to manage the claims process—this is not the case in an organisation of our size. We may get a claim from a client where there is a dispute—the process is not a regular claims scenario and is normally at a high level.” However, for firms such as Capespan, the case is often different, said Ms da Cunha. “We have vast self-insurance programmes where we manage the claims ourselves. Our insurance portfolio is substantial and we have dedicated resources responsible for the claims and the underwriting especially with regards to the risk retention programmes and insurance thus reports into the risk management department.” According to Mr Delport, it all comes down to your risk profile. He said: “In the end, your risk profile or appetite should determine how much insurance you buy.” CRE asked the roundtable participants whether they look for risk management certifications or qualifications when searching for new members for their team. Mr Young noted that at Sanlam Investments, there are currently three risk managers based centrally within the organisation. This is across the group’s 20 or so operational companies, however, each company has up to three appointed risk champions, which could be the financial director, operations manager, or the compliance officer. “Three or four of those businesses are much bigger and actually have an appointed risk manager. But from an operational point of view we want people that understand that particular business so we are not always looking for specific risk qualifications,” he said. “We look for operational and financial skill and then train them in risk management.” In Ms da Cunha’s experience and opinion, the CRO needs to be thoroughly risk-trained, whether this training is formal or informal; however formal qualification, risk knowledge and sector experience is a vital competency and more valuable than just an academic qualification. “The risk champions need to know the business in the same way the CRO does.” In addition to the educational competencies the criteria for a CRO includes excellent communication skills and business knowledge. Sponsorship from the audit team and the chairman of the board is critical as it is the top that sets the risk management tone.” Mr Young added that consulting skills are also important. “The risk manager needs to be able to communicate from the lowest levels of the organisation to the chairman of the board.”

The role of risk management

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