I always say that
everything comes down to risk management. From whether you fly or drive to your
vacation spot, to whether you have one more beer at the party, to what stocks
you invest in within your 401(K), it all comes down to decisions about risk.
Sometimes the decisions are monumental, but mostly they’re insignificant. Most
of the time we can ignore, or accept the risks we take on daily with no impact,
other times we see the very real repercussions.
If there were ever a
poster child for what happens when you blatantly ignore risk management, it
would have to be Jon Corzine. The former
CEO of MF Global, and former Governor
of New Jersey, and former Chairman of
Goldman Sachs – whom you would think would understand essentials of risk
management as well as anyone on this planet, apparently routinely ignored the
pleadings of his Chief Risk Officer about the tenuous position of the firms
investment positions.
Tragically, Mr. Corzine not
only ignored what his Risk Officer was telling him, he undermined him by
complaining to others in the company about the “dour attitude and persistence”
(?!?!) of the Risk Officer.
No surprise that the
Chief Risk Officer was let go in March of this year.
The act of ignoring risk
management as the riskiest possible action is a tautogical overstatement of
mythical proportions. It is true
that America's culture, more than any
other in the world, forgives failure, tolerates risks, and embraces uncertainty
in almost any endeavor. In fact the more brazen the better. Think of the Moon
landing, or Evel Knieval.
Yet what is it about a CEO who
arguable is a brilliant individual, with undeniable talent, insight and an ability
to lead organizations successfully that allowed him to take on risks that were
not commensurate with his company’s, or at least his Chief Risk Officer’s risk
appetite? Your CRO and General Counsel should be the two people with whom you
get full agreement on every significant decision that you as a CEO makes. Undermining
your CRO about his warnings on your risky behavior is like telling everyone
your cardiologist is a ‘Debbie Downer’ because he diagnosed you with lung
cancer.
I think our general nonchalance,
or maybe disdain for risk management in general stems from what we as lay
people interpret as its accessibility. Everyone has heard or has used the
question “What’s the risk?” Yet how many people really under stand true risk
management principles? Inherent risk?
Residual risk? Really? Do you know
what it means? (Ultimately, I blame Parker Bros. for creating the board game,
Risk, which we all played as kids. Now everyone thinks they understand, in
addition to world domination, ‘risk.’)
You rarely hear people throwing
the term “quantum physics” around as cavalierly as we do with the phrase “risk management.”
Many of us in the Corporate world think we understand what risk management is
like many homeowners think they under electricity or plumbing. Sure, you can
change a faucet out or wire a ceiling fan, but would you as untrained homeowner
really think that it is worth the risk (the word, again) to rewire the circuit
panel that powers your whole house? Most rational individuals don’t think it is
worth the tradeoff of saving the $300 it costs to have the electrician come and
do the job right, versus the possibility of burning your own house down. A
tough sell to the wife under any circumstances.
Just like I don’t expect my
dentist to tell me about best practices in privacy, I don’t pretend I know the
best way to extract a bicuspid either. So, please, begin to give risk
management its due as a genuine discipline practiced by professionals who have
different and specialized skills that you don’t have. Don Corleone needed a
professional risk manager (Consigliere, Tom Hayden) and so do you, I’ll bet.
Don’t go it alone. It’s not worth the risk.
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