New Risks and Uncertainties of 21st Century

The change in the century has hit the business world like a tsunami. Old management styles, practices, assumptions, power houses, technology and governance are rapidly disappearing. I am listing a dozen out-of-fashion concepts of 20th century being replaced by the 21st century in-fashion concepts.

20th Century       >       21st Century

1)    Feudalism                                    Gen  Y

2)   Europe                                          Emerging markets

3)   US as a super power                   Power base shifting to Asia

4)    Autocracy                                    Social media

5)   Bureaucracy                                Crowd sourcing

6)   Top down approach                   Collective intelligence

7)   Command and control                Emotionally intelligent leadership

8)   Localisation                                  Globalization

9)  Division of labor                           Knowledge management

10)  Personal computers                  Tablets

11) Hardcore profitability                 Corporate social responsibility

12) Theft & robbery                          White-collar-crime

Gen Y is a native of this new environment, whereas Boomers and Gen X need to immigrate to it. The same applies to companies, they have to compete globally to survive and adapt to the new concepts immediately. The ones that fail will be breathing their last in a few years.

This business environment also changes the landscape of risk management. The experienced risk managers actually have no experience in dealing with the uncertainties and risks of the new environment.  On the other hand, the baggage of the past may become a hindrance to look at risks with new eyes and fresh perspective.

Hence, let us find out what percentage of risk managers are theoretically and practically geared to do risk management in this environment.

Any ideas on what are the new risks and how should risk managers address them?

Should Risk Managers Take Different Roles?

Currently, media is brimming with stories of corruption, greed and unethical behavior in the corporate world. Risk managers are targets of public ire. All are under fire – compliance officers, fraud investigators, auditors, etc. The stakeholders and public are rightly questioning their commitment and capability in discharging their duties. Under such circumstances, a few risk managers must be contemplating whether it is the right time to change and take up different corporate roles.  Let us address the three main aspects of the decision.

1. Why am I in it?

Risk management roles have two sides. The positive aspect of the role is that it is intellectually stimulating as risk managers learn various facets of the organization. On the flip side, it is a thankless job as their advise and reports rattle most business executives. They never win a popularity contest, are not welcomed with garlands and operation teams think of them as party poppers.

Risk managers to function diligently need high emotional intelligence, integrity, courage and an altruistic temperament. They have to stand up and give negative information to senior managers, even at the risk of being shot, for the betterment of their organization.  With the same qualifications and experience, they can get a line job, most probably a better paying one. Hence, why should they continuously face flak, stress and heart-burn? The reason is passion. It goes back to why a person chooses a specific field. As Confucius said longtime back – “Choose a job you love, and you will never have to work a day in your life.” 

2. Can I do other jobs?

Risk management is a specialized field. The knowledge level required is so high, that a credit risk manager cannot do the job of an operational risk manager or vis-a-versa. K.Anders. Ericsson in his paper “Making of an Expert” analysed that it takes 10,000 hours of incremental learning to become an expert in a specific field. That is, it approximately takes 10 years to master an area. He categorically mentioned, there are no born geniuses, and there is no substitute for hard work.

Stories of success of Bill Gates and Steve Jobs, leads us believe that college drop-outs made it big, so why can’t we? Gates and Jobs, both started learning and continuously working in computer field from the age of thirteen. By the time they dropped out of college, they had 8000-9000 hours of studies and work time in computers. Hence, it isn’t surprising that they could leverage their knowledge successfully.

Therefore, the choice is whether one wishes to be a generalist or a specialist. It again comes back to, whether a person wishes to work for money or fulfill their passion. Normally, if a person works in an area they are passionate about, they find their life more meaningful and rewarding. Their happiness and positive attitude translates into more successful careers. Hence, aim at being an expert in your area.

3. So many failures!

Should the risk management failures dishearten risk managers to the extent of changing careers? I think not. At this time, the world requires well-trained and dedicated risk managers. This is a century of chaos; organizations are in for a roller-coaster ride in this decade. Risk managers can steer them into safe harbors, facilitate them in leveraging upside risks and mitigating downside risks. When the times are tough, the tough get going. Now risk managers need the stamina and perseverance of sports people. Let us take a leaf out of Michael Jordan’s career –

“I’ve missed more than 9000 shots in my career. I’ve lost almost 300 games. 26 times, I’ve been trusted to take the game winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.” 

Closing thoughts

Risk managers in this age of turbulence can play a pivotal role in shaping the future corporate world. To do so, they need passion and commitment. I am sharing with you Isabel Allede’s speech on tales of passion. Isabel is awesome – witty and inspiring at the same time. I hope you too become a dedicated risk management activist after hearing her. Just discover your passion.

References:

Making of an Expert – K. Anders. Ericsson

LIBOR Scandal – What Went Wrong?

This week Barclays Plc made banking history for the wrong reasons. The unheard occurred – the chairman, chief executive officer and chief operating officer – all resigned within one week. While chairman of Barclays, Marcus Agius took the blame saying “the buck stops with me“, initially Bob Diamond said the incident was “inappropriate“. An understatement or lack of adequate vocabulary for describing a manipulation with such huge impact on the financial markets? LIBOR is used as a benchmark for prices of approximately $ 350 trillion of financial products. British and US authorities fined Barclays $453 million!

In the parliamentary hearing yesterday, Mr. Diamond did modify his viewpoint and said “behavior is inexcusable“. In the hearing, Mr. Diamond implicated Bank of England and the Financial Regulatory Authority. With a dozen more banks under investigation, this story of rigging interest rates  isn’t going to blow over. It is just going to get murkier with time.

Watch this video to get an inside view on the procedures for calculation of LIBOR and the lack of monitoring by the regulators. Some speakers have given volatile views, but these are definitely worth listening in case of such a serious breach of business ethics.

In the last couple of months, titans of banking industry are facing the public ire. First Jamie Dimon was called in for questioning by US senate, yesterday Bob Diamond was questioned by UK parliament. The winds are blowing in a different direction; public is outraged by lackadaisical attitude of bankers towards ethical practices. Since the financial crises, many have written about the need to change culture within the banking organizations. However, from the frequent scandalous news stories, it doesn’t look that the wizards of the industry are understanding the social strategic inflection point.

With senior bankers’ ambition to join billionaires club, even the best minds have developed blind spots. The ambition is for more and more money; they have forgotten that more is not always better. We need banking CEOs to have the ethical mindset of Dalai Lama to bring about a positive change in the industry. Is it possible, what do you say?

References:

Barclays CEO Bob Diamond Resigns After Rates Scandal – Business Standard