For risk managers 2012 was an eventful year. The frequency of ethical breaches, regulatory failures, operational disasters and natural calamities ensured that risk managers have their hands full and are not going to run out of work in 2013. In effect, risk management function is at a strategic inflection point and is facing disruption risks. Globalization, rapidly changing technology, economic recession in Europe, political turmoil in Middle East, growth of emerging markets and global warming has changed the risk landscape. Throw out of the window the old stance of managing risks by implementing controls and focusing just on financial processes and operational risks. The 21st century demands risk managers to focus on strategic, cultural, leadership and human resource risks. This is a bold statement to make, so here are my reasons for making the same. Do you think I am on the right track?
1. Banking Sector Culture Needs Overhauling
Though I have not done a tally of regulatory fines paid by banks during the year, the numbers are awesome. It the status quo remains the same, paying billion dollar fines will soon become fashionable. The way bankers are behaving, if culture does not change, they will start a competition on who pays the biggest fine and gets away with it. It is clear that bankers gave a lot of lip service of changing to the public after the financial crises. Nothing much changed and they remained complacent with their ability to escape any personal loss due to reckless behaviour. Even with fines, it is investor loss with hardly any personal responsibility. 2013 will determine whether bankers can do the right thing for the right reasons in the right way.
2. No One is Too Big to Go to Jail
2012 showed that breaking the law isn’t an option for top guns. Big names, for instance, Rajat Gupta and Rebecca Brooks realized the arms of law are long enough to reach them. The psychology that it only is a crime if one gets caught needs to change. A connection even with the Prime Minister doesn’t insulate a person from being held legally accountable.
The downside of capitalism is that business ethics are put on a back burner in pursuit of profitability. 2013 will see the trend of businesses focusing on building ethical cultures.
3. Senior Management Fails At A Higher Rate
Throughout the year, one heard senior managers being fired for poor performance, regulatory breaches, criminal acts or inability to keep their pants zipped. Tragic but true, that senior managers are failing to walk the talk and assume leadership is about playing power games. They ignore everything in pursuit of a bigger pay packet. It isn’t that leaders didn’t fail previously, but now they make headlines at global level.
Additionally, social media and increasing percentage of women in the workforce has made old management and leadership styles redundant. Flatter organization structures are replacinghierarchical styles. Collaboration is in focus rather than competition. Boomers are leading most organizations, and their style of leadership is passé. Hence, in 2013 we are going to witness higher leadership failures unless organizations start managing leadership risks.
4. Regulators Take A Tougher Stance
Worldwide regulators have changed their stance. Be it Comptroller and Auditor General of India, Department of Justice of USA or Financial Services Authority of UK, regulators are beating the drums for better compliance. From asking the biggest names in banking to give explanations to holding government accountable for incorrect decisions, they are leaving nothing out of the ambit. They are leading the path for risk managers to follow. In 2013, we are going to see a spate of disclosures from regulators.
Whether we see the banking failure reports, or other aspects of business, risk managers knew and understood the risks. However, they decided to play it safe and not bell the cat. Challenging and confronting business leaders at the expense of ruining ones career can be a tough decision. One avoids the decision, especially when, the lines of accountability state that final responsibility of managing risks lies with the business leaders. However, in the times ahead risk managers won’t have this luxury. They will have to stick their neck out to ensure organization stays legally compliant and manages risks optimally. I don’t know whether this makes risk managers happy. In my view, in 2013 we should take it up as a challenge and change the dynamics of the risk management function.
Wish you and your loved ones a very Happy New Year.