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CHIEF RISK REWARD OFFICER - WHAT’S IN A NAME?
“Write about models” a close personal friend urged. “Everyone loves models, of one type or another.”
In business we all need to make a profit in a sustainable manner, to verify that the contribution we make in our chosen arena has validity. Doing it right the first time reduces costs, adds to the sense of legitimacy and promotes an air of satisfaction within the operation. It’s good for team morale and serves as a platform for greater challenges.
Let’s look at business risk or compliance models, call them what you will, in plain language, (given the target audience), without reference to complex formulae. Models have to be legislation compliant including, amongst others, King III and the 2008 Companies Act.
It’s all about the emphasis though, which manifests itself in the company culture. Some aspects of the two hypothetical extremes are highlighted; more factors could be added. Before proceeding, please note that risk tolerance does not always partner customer-centricity; many permutations arise in real life. The linkage is being used in this article as a space saving mechanism:
Model 1 – Risk averse / organisation-centric.
Model 2 – Risk tolerant / customer-centric.
Model 3 – Risk / Customer neutral or ambivalent.
Corporate Governance came into being because there is an international need to prevent further power abuses, both major and minor. Corporate SA now has an opportunity to polish its image, to be the quintessential model citizen, in more ways than one.
Is there better way though? Are refinements possible within the current system?
The King III guidelines are some of the best available so far. I favour the model 2 manifestation described above, as it is more likely to achieve the legislated aims and quickly adapts to further legislation, such as the 2008 Consumer Protection Act due for implementation in October 2010. I would prefer to be their customer or staff too. The difference is not so much in the structure though, it’s in the attitude. Extinction behaviour, ignore it and it will go away, works on people and opportunities, but not risks.
Call it tinkering if you like but the positive side of risk management is rarely seen or acknowledged. A quick and simple way to remedy this situation is to change the title of the Chief Risk Officer (CRO). Chief Risk Reward Officer is a more apt descriptor. You could probably think of an even better title. It immediately gives licence to the incumbent to deliver on a broader range of business options and clearly demonstrates to internal and external parties a more healthy, balanced portfolio approach.
It is also more realistic for the business to have a cost centre with an income and profit potential. It would be a more attractive prospect for candidates too.
Before closing, I believe that there will be an onus on private equity and non-profit business to demonstrate controls, including risk management, to those who deliver the annual audit or audit review opinion on your ‘going concern’, even though these two business entities are specifically excused from some of the provisions of the 2008 Companies Act.
So which model will you adopt to comply with King III, the 2008 Companies Act and other new legislation? Will you miss the business opportunities that come your way because of your structures, titles, attitudes or some other distraction?
... “ART is an authorised Financial Services Provider”
Supplier of Risk Management services to the 2010 world cup South Africa
Paul Brightman - Alternative Risksmiths and Traders (Pty) Ltd. Short name - ART.
Cell : +2783 708 3634 Work : +2711 646 2777
11, Taylor Rd, Greenside, Johannesburg. Code: 2193.