Archive for October, 2009

How Many Angels on the Head of that Pin?

Thursday, October 29th, 2009

 

The ‘reveal’ of the failure of the banking market continues to be spectacular.  News that the FSA is considering micro product regulation caught our eye (Mortgage borrowers face stricter tests www.ft.com 19th October 2009), as did Melvyn King’s recent statement that banks should be split so that they may fail.  For managements who daily face the test of competitive markets, the concept that the ultimate sanction of commercial failure could be lacking is interesting—as is the idea that a reputable business would sell a product that it did not understand.  It continues to raise questions about management competence and what happened to the management of risk in the banking sector. 

 

Some of it is evidently merely human.  There is much comfort in delegating difficult topics such as risk management to ‘experts’: it reduces those uncomfortable (natural and probably appropriate) feelings of incompetence and fear in the face of complexity.  In regulated sectors it also ticks compliance boxes, (although Solvency II is an attempt to make this more challenging).  And inevitably most experts want the work, and may even be unaware of how limited their view and tools are.  Underlining the point, a recent Web 2 Risk Management interest group discussion on the topic involving senior risk managers from major companies, was quickly submerged in a technical discussion of the merits of various models, (exactly how many angels dance on the head of a pin?). 

 

The breaking of the connections between competence, responsibility and authority is one of the more interesting parts of the banking sector reveal.  How did senior management teams sanction the development and sale of products that had such serious consequences for their own businesses, but above all for their clients?  Was it short termism, lack of competence, that they knew they were too big to fail?  Or was it the culmination of years of silo’d management practice with no–one worrying about the big picture?  The challenge In organisations seeking success rather than nationalisation, is how the business (inevitably faced with ever increasing product and market complexity), ensures this essential connection is maintained?   

Ø  ¨ How whole business is your approach to risk management?

Ø  ¨ Does your organisation take undue comfort from delegating key responsibilities to technical experts?

Ø  ¨ Do your Risk Managers rely on their expertise or relationship with regulators to influence your business?

 

Next Steps? :

Talk to us, in confidence and without obligation about building management competence and influencing skills especially in technical experts 

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