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Research paper

Chief risk officers at crunch time: Compliance champions or business partners?

Anette Mikes
Journal of Risk Management in Financial Institutions, 2 (1), 7-25 (2008)
https://doi.org/10.69554/QKAS4523

Abstract

New regulatory requirements have raised the bar on compliance and significantly expanded the remit of risk management departments in financial institutions. The compliance imperative requires banks to implement a firm-wide risk management framework complete with analytical models for the measurement and control of quantifiable risks. In addition, recent corporate governance guidelines advocate the ‘business partner’ role of risk management, considering it a high-level strategic activity, contributing to board-level decisions, planning and performance management. This requires senior risk officers to understand and communicate key strategic uncertainties to senior management and the business lines. This paper assesses the roles of risk functions and, in particular, senior risk officers in 15 international banks. The research, carried out between June 2006 and June 2007, offers a snapshot of the state of risk management before the liquidity and credit crunch became apparent in the second half of 2007. The findings suggest that the role of chief risk officers (CROs) had expanded dramatically, with more than half of them frequently involved in firm-level strategic decisions. In the majority of these banks, however, various compliance and risk modelling initiatives were still works-inprogress at the onset of the market turmoil. CROs voiced divergent views on the uses, benefits and limitations of risk models, suggesting that they promoted different ‘calculative cultures’ (‘quantitative enthusiasm’ versus ‘quantitative scepticism’). Fostering alternative calculative cultures, strategically involved CROs interpreted the ‘business partner’ role of their function differently. Some risk functions aspired for an influential expert voice in key business decisions, while others strived for the formal integration of risk management with performance management. The paper thus calls for a clarification of stakeholder expectations on risk management to reduce the danger of an expectations gap around particular risk management approaches that are adequate for certain banks but ill-suited for others.

Keywords: risk management; enterprise risk management; risk modelling; calculative cultures; quantitative enthusiasts; quantitative sceptics; chief risk officers; banking industry; regulation

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Author's Biography

Anette Mikes is at the Harvard Business School. Her research interests include the diverse practices of risk management deployed in various organisations, and the managerial and control challenges that these practices both resolve and raise. She is currently working with a group of chief risk officers to assess what ‘good risk management’ entails in different organisational contexts.

Citation

Mikes, Anette (2008, October 1). Chief risk officers at crunch time: Compliance champions or business partners?. In the Journal of Risk Management in Financial Institutions, Volume 2, Issue 1. https://doi.org/10.69554/QKAS4523.

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cover image, Journal of Risk Management in Financial Institutions
Journal of Risk Management in Financial Institutions
Volume 2 / Issue 1
© Henry Stewart
Publications LLP

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