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in the $200,000 to $400,000 compensa- modity and financial trading and services;
tion range. Companies more and more are and forest and consumer products.
looking for candidates who have not only After studying engineering in Germany,
quantitative skills, but who are also market- Hofmann received both his undergraduate
savvy (trading experience, for instance) degree and MBA from Wichita State Uni-with front-office experience, and who are versity. He worked as an auditor for KPMG
forward-looking and can communicate Peat Marwick for seven years before joining
complex concepts to senior management. Koch in 1991. He was the chief market risk
The recruiter contends that instead of officer from 1999 to 2000, when he helped
being paid like people in back-office control develop and start up trading ventures.
and accounting functions, as they histori- “We deal with a diverse set of business is-cally have been, these risk managers are sues and a broad set of financial risks,” the
now compensated more in line with what Risk is an integral part of the “Market- CRO says, noting that his role has similari-front-office personnel earn per year: any- Based Management” philosophy at ties to that of a financial institution CRO.
where from a couple of hundred thousand But while Koch Industries deals with some
privately held Koch Industries, says
Michael Hofmann.
dollars to a million or more. Woodrow adds of the same operational risks – in trading,
that the ranks of risk managers remain overwhelmingly, clearing and the like – it also faces a different set. Consider
perhaps as much as 90 percent, male. that, as Hofmann puts it, “the same week that Lehman went
According to Buehler at McKinsey, which has tracked the bankrupt, we had to deal with a major hurricane.”
growth and penetration of CROs by industry, “within [U.S.] Koch says it takes advantage of its private status by think-banks and securities firms, the CRO role first made its ap- ing like an investor and focusing on long-term value, which
In organizations that get it right, the CRO has the ear of
pearance in the early 1990s, reached roughly 49 percent of
firms by 2002, and is now present at more than 80 percent
of firms.” It’s becoming a regulatory expectation “to see one
person thinking of risk on a full-time basis,” Buehler says.
The CRO position is gaining traction outside banking and
securities: 19 percent of insurance companies had a CRO in
2002, rising to 43 percent now. Adds Buehler: “Other industries with significant penetration include energy and utilities, at 50 percent, and health care, and metals and mining,
which are both at roughly 20 to 25 percent.” For corporates
overall, roughly 4 percent had a CRO in 2002, while more
than 10 percent do today.
Koch Industries, because it is privately held, is under no
external pressure or regulatory mandate to do risk management. Yet it has a CRO, Michael Hofmann, who oversees
all global, market, credit and hazard risk management.
Headquartered in Wichita, Kansas, Koch is one of the
world’s largest private companies, with annual revenues of
around $100 billion, over 70,000 employees in more than 60
countries, and a portfolio of businesses that includes refining
and chemicals; process and pollution control equipment and
technologies; minerals; fertilizers; polymers and fibers; com-
publicly held companies are often criticized for not doing.
Chairman and CEO Charles Koch, also the principal owner,
was very involved with senior management in developing the
vision for the risk management program, which was motivated by a desire to “protect our financial strength and improve
decision-making.”
It has three guiding concepts, consistent with the company’s “Market-Based Management” philosophy. First:
“The future is unknown and unknowable,” or, in other
words, “think about what could happen rather than trying to
predict what will happen,” Hofmann says. Second: “Reward
and risk are inseparable,” or, “the role of risk management
is to ensure you understand the risks you’re taking and avoid
the risks that are never acceptable,” he adds. Third: “We are
all human beings,” meaning, “we are all subject to biases
that affect our judgment and cloud our decision-making.”
The philosophy has been “very helpful in making risk
management a part of our culture, our DNA,” Hofmann
explains. “It’s not an add-on and not an afterthought. It’s
integrated.” Being privately held allows for “a different mind
set,” Hofmann says. “It’s not funny money or Monopoly
money. It’s [our] own money. We know our shareholders,
14 riSk profeSSional FEBRUARY 2009
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