In 2006 the risk management chiefs of two British financial institutions – we’ll call them Saxon Bank and Anglo Bank – were in similar situations. Each reported directly to the CEO and had, in theory, the same influence in their organisations. But by 2011 Saxon’s risk management group, unified around a common purpose, was deeply engaged in critical work throughout the bank, while Anglo’s, divided into two specialised and loosely connected groups, had little visibility outside specific areas of expertise.
Our close study of these two banks offers lessons for other functional experts in search of influence. We have identified four competencies – trailblazing, toolmaking, teamwork and translation – that help functional leaders or groups in any organisation compete for top management’s limited time and attention, and ultimately increase their impact.
Saxon and Anglo weren’t twins: Saxon focused on consumer lending in a geographically concentrated, mature and competitive market, and was therefore seen as risk averse. Operating functions, including a relatively large risk management group, were centralised. Anglo focused on riskier corporate lending in geographically dispersed emerging markets. Its risk function consisted of two groups: corporate risk management, dedicated to company-wide risk monitoring and regulatory compliance, and local risk management embedded in the business units, which advised on big deals and lending strategy.
Get daily business news.
The latest stories, funding information, and expert advice. Free to sign up.
Despite those differences, we think the influence-building strategy Saxon’s chief risk officer and her team pursued – that is, their embrace of all four competencies – could also have worked for Anglo’s risk managers, had the two groups been able to combine their strengths.
In some firms, the job of risk management is to police the business for compliance; in others, it is to help the organisation identify uncertainties and convert them into manageable risks. At Saxon, however, the chief risk officer went further. In her initial years at the bank, she made a habit of spending one day a week talking to staff deep in the organisation, and her team members followed suit. As one senior risk officer explained: “You can’t talk about the risks in the business without actually telling the story of what the business is doing.”
Saxon’s chief risk officer also demanded – and was granted – a seat at the weekly executive committee meetings and the monthly board meetings, which gave her visibility and an opportunity to assert a risk management perspective in important discussions. Moreover, she had direct access to nonexecutive directors, who used her expertise as ammunition with which to challenge top management.
At Anglo, the local risk managers had close relationships with business unit managers; a good understanding of specific products, industries and countries; and the authority to shape the lending portfolio’s size and composition. But because their mandate was concerned more with revenue growth and credit risk control than with operational efficiency, their scanning activity was necessarily narrower than that of their counterparts at Saxon.
Moreover, Anglo’s corporate risk team was on the lookout for regulatory issues and techniques to ensure compliance with capital adequacy standards – not for new ways to advance risk management throughout the firm.
Identifying important business issues is only the first step. Developing tools that help corporate-level executives analyse and interpret those issues is another matter. The visibility of Saxon’s chief risk officer in high-level governance forums required her to present her perspective in a distinctive yet accessible language. To do this, she and her group came up with tools such as a quarterly risk report, which was presented to the board.
When members of the group noticed that the quarterly risk report was prompting forward-looking questions from the board, they decided to introduce formal future-oriented reporting practices, which in turn led to more new tools: scenario-planning templates and early-warning indicators.
Anglo’s corporate risk team developed many companywide risk tools for regulatory compliance. The managers pushed for the development of advanced tools, such as economic capital models, even though regulators allowed (and Anglo had previously adopted) compliance approaches that were less technically challenging and easier to use.
Meanwhile, Anglo’s local risk managers distanced themselves from this effort. They had their own valuable tools and heuristics for judging the risk of deals and portfolios in their domains, but these were carefully guarded, not disseminated throughout the company.
Functions that engage heavily in toolmaking need to enrol supporters and users. Saxon’s risk management group, for example, engaged divisional managers by giving them early versions of the scenario-planning templates. The managers could then discuss them with their senior staff, provide feedback and see their own influence on the final templates.
Story continues on page 2. Please click below