Risk and the art of softer skills
The risk environment is changing, and it’s becoming much harder for risk professionals to do their jobs.
Some of the risks financial institutions face now are evolving very quickly, especially in relation to data and technology. Climate and sustainability issues are now very real and outcomes uncertain. It can be quite a challenge for board members, chief risk officers and risk professionals to be on top of everything.
As part of our work [as the Risk Coalition] developing new principles and guidance for UK financial services firms on effective risk oversight, we completed more than 60 interviews with chief risk officers and board risk chairs.
The right fit
Ten years or so ago, the chief risk officer was very much a technician’s role. Now there’s been a shift, and we’re seeing softer skills become more important.
The focus is really around someone who’s very credible and has good influencing skills. Someone who's self-aware, operating at C-Suite level. The chief risk officer, for example, has a very important role in challenging and, in cases, acting as devil’s advocate.
The role holder needs to be somebody with the ability to stand their ground, resist groupthink and potentially to be able to deal with a dominant chief executive.
On that point, one of the things we’ve tried to emphasise in our risk oversight principles and guidance is the importance of having the right reporting lines. If a chief risk officer is only reporting to the chief executive, then there’s a danger that what the chief executive says, goes.
So we have made it evident that there also needs to be a very strong reporting line to the independent directors sitting on the board risk committee. That relationship with a risk committee chair is central to good, effective risk oversight.
With regulators so focused now on personal accountability, knowing how to do your job right has never been more important and the new guidance helps risk committee members and chief risk officers do that.
Our interviews showed most focus is on current issues – what needs to be dealt with now and what needs to be fixed immediately.
But there are lots of unknown risks on the horizon, and it’s important for risk committee members and boards to be looking at emerging risks – as well as the current ones. The chief risk officer has a key role here and he or she needs to have the ability and skills to horizon scan.
As the old proverb goes, forewarned is forearmed.
The Risk Coalition is a network of not-for-profit professional bodes and membership organisations committed to raising standards of risk governance and risk management in the UK.
Hanif Barma is Co-founder of the Risk Coalition and Founding Partner of governance consultancy, Board Alchemy.