Over the last couple weeks, OpenPages has participated in three different conferences on risk and compliance. We sponsored the Global Conference on Operational Risk put on by the RMA and ORX, Gartner’s Risk Management and Compliance event in Chicago, and the RIMS show in Orlando. At each event, many people were asking about the role of risk management moving forward. In particular, as companies adjust to a new reality of risk management oversight, particularly in the financial services arena, many are rethinking how the different risk disciplines relate to one another.
Rene Stulz in the Six Ways Companies Mismanage Risk, published in the March issue of the Harvard Business Review, notes that risk managers often distinguish between market, credit and operational risks, which they measure separately and in isolation. However, Stulz points out that "when you put risks into a box, you’ve ignored the fact that business units strongly identified with a particular class of risk may be exposed to risks of other types that are associated with other units." Stulz goes on to point out that the collapse of the securitized mortgage market led to not just realized market risk for banks but also a very serious business risk associated with the drop in revenue associated with the lost fee income.
As more and more examples emerge about how risks cut across organizational silos, companies will more seriously consider a holistic approach to risk management. Part of the inertia has historical and cultural underpinnings, but to get out of the current crisis with a revamped risk management program that would help avoid another financial crisis of this type companies will need to get the different risk management silos to work more closely together. More on that later.