Risk Professional, February 2009

cover Story

place that had established a strong risk management culture. more decentralized. “People felt risk management was every-Goldman Sachs & Co. shares that reputation. So it makes one’s job,” says Lam. He found it necessary to lay out a clear sense that boards looking for risk expertise – and companies vision for a more integrated risk management program, and looking to hire risk executives -- would look to them as fertile for what his role was at the firm. Getting people to under-recruiting grounds. Examples: Bank of Montreal appointed stand and accept these things took time, he says.

Don Wilson III, the former CRO at JPMorgan Chase & Co., “You cannot have effective risk management without it to its board last March, and JPMorgan Chase named former coming from the top down,” Lam explains. Otherwise, he Goldman Sachs executive Barry Zubrow CRO in November notes, CRO’s end up spending half their time persuading 2007. A recent independent addition to Feldman’s FHLB people to do the right thing, which doesn’t leave them much of Chicago board is Diane M. Aigotti, who held the titles of time for getting their jobs done. “It’s an uphill battle and senior vice president, chief risk officer and treasurer at insur- doesn’t do anyone any good,” he says. ance brokerage and consulting firm Aon Corp. from 2000 to The FHLB’s Feldman recalls that in 2004, when he was 2008. first named CRO, his role wasn’t clearly defined, and his

The regulatory and consulting arenas are other sources peers on the management committee didn’t understand it. of expertise. For instance, reinsurer RenaissanceRe Hold- But times have changed. Feldman can now provide leader-ings named Anthony Santomero, a former president of the ship on risk management to his CRO, Michael Ericson, who Federal Reserve Bank of Philadelphia and a McKinsey risk had previously overseen Securities and Exchange Commis-practice adviser, to its board last February. Today it’s not so sion reporting and accounting policy, and who had formerly easy, however, to get people to leave the regulatory world worked at PricewaterhouseCoopers, Bank One Corp. and for corporate risk jobs, according to Risk Talent’s Woodrow. JPMorgan Chase. Feldman makes it clear that he not only One reason, he says, is that it’s an exciting time to be in the did the CRO job, he “respects it.”

You don’t want a ‘Dr. No’, but just as bad is having a

regulatory arena. Many ambitious and talented people, who in years past typically would have eagerly made the jump, are often opting to stay put; others are even moving into the regulatory sphere.

The other major piece of this governance issue that needs to be addressed has to do with the CEO. “It’s important for the CEO to set the overall tone,” says Deloitte’s Hida, adding that this demonstrates that “risk management has a seat at the table in the decision-making.”

Lam knows firsthand from his CRO days just how critical this is. GE Capital had hired a bunch of traders from a foreign bank for its capital markets start-up. But according to Lam, they didn’t pay attention to the risk management systems that had been set up. Lam reported it to top management; they shut down the business for two days and conducted an internal workshop on how risk must be managed. This was a big deal, he notes, especially for a start-up where every day counted. It showed that GE Capital “took risk management very seriously,” Lam says. “Clearly, they got it.”

However, Lam says when he joined the privately owned Fidelity investments in 1995, he faced a different challenge. Unlike GE Capital and its hands-on approach, Fidelity was

Balancing risk and reward means looking at them together and making decisions from a business standpoint, Deloitte’s Hida explains. One way companies have been doing this is by moving toward integrated enterprise risk management, or ERM, and away from silos, with their various chosen models, processes and oversight committees.

Breaking down risk silos can be time-consuming. The FHLB’s Feldman says he spent “a significant part” of his two years as CRO doing just that. (He made a simple but strategic impact on the culture and cohesiveness of the organization by arranging, as one of his first orders of business when he became CRO, the purchase of BlackBerry handheld devices for most of the bank’s 450 employees.) Even with only six months at the FHLB under his belt before becoming CRO, Feldman says he was seen as somewhat of an insider, which helped his cause. An insider has a “better understanding of the values of a culture, and has developed a respect for how to change it,” he says. “An insider also has more credibility.”