Knowledge Center: Expert Guidance

Financial Services

The New Era of Talent in the Risk Function: Risk Convergence

Subscribe to Financial Services 12/12/2013 Paul Gibson

As the risk function has shifted from a largely back-office operation with little influence to be more strategic, regulatory agencies are insisting that these functions be structurally independent and staffed with strong talent.

New forms of risk now have new and sometimes fancy names. Phrases like “regulatory risk,” “reputational risk” or “key man risk” are very much part of the vocabulary within financial services, but also just as applicable to any business.

These examples clearly illustrate how inter-connected all forms of risk are today. This is quite evident in the work we do for our clients, whether talking to a board director, CEO, business or functional leader. In some cases, this convergence results in new structures or reporting lines within financial services.

For example, one way to think about compliance-related risks is to have the Chief Compliance Officer report to the Chief Risk Officer, rather than perhaps a more historical model where the compliance leader might report to a General Counsel. However, there is also a counter argument to this: to give compliance a seat at the executive table the top role in some cases now reports straight to the CEO.

With this kind of crossover and pressure, there comes demand for new leaders at the top of these functions. The breadth of these roles is greater than ever, and there is serious personal and career risk in taking them on. With the financial world operating more globally-connected than ever before means leaders must possess a mix of essential qualifications.

Traditional risk employees with strong technical knowledge and mathematical skills may fall short on leadership and the higher-level soft skills that firms increasingly demand, e.g. problem solving, strategic planning, management and influencing skills. Senior executive candidates now need to be able to demonstrate experience dealing with risk on a systemic level, beyond one product or geography.

Organizations should look within their own ranks for high potentials outside the risk and control functions who can be trained and developed for the new realities of risk. They can accelerate the readiness of high potentials by aggressively investing in them through focused leadership development and coaching. But organizations will also have to recruit outside as well. To attract broader groups of qualified individuals, they should consider looking in unconventional places or at alternative groups of candidates, such as divisional CEOs.

Bottom line: Risk matters more than ever. For those at the very top of these functions, leadership and soft skills are as important as technical expertise.

Paul Gibson Partner +1 212 867 9876

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