Governance, Risk, and Compliance (GRC) Resource

See Michael Rasmussen’s blog: Governance, Risk and Compliance Intelligentsia; he’s a prolific writer on enterprise risk and compliance at Forrester.  

Zurich: What if you’re facing a risk, risk, risk, reward situation? A good caddie.

A great corporate ad from Zurich, under its “Because Change Happenz” tagline — What if you’re facing a risk, risk, risk, reward situation? 

“We work like a good caddie. A challenging golf course can be a lot like the business world. Avoiding the hazards that can eat your ball, or your business, takes special skill, and a whole lot of confidence. As one of the top three insurance providers for businesses in the country, we can provide insurance specialists that work like good caddies, helping your company find a safer approach, or at least a way forward that feels sensible. While we can’t protect you from everything, we can at least enable you to focus on more important things, like your bottom line, or perhaps overcoming that wicked slice.”  

Allianz from A – Z

Allanz’s print ad, “Financial Solutions from A – Z” 

Annuities in Boston? Construction in Dubai? Equity fund in Frankfurt? Gain sharing in Houston? Investing in Jaipur? Knock-out option in New Delhi? Office space in Pittsburgh? Quick selling in Rome? Samurai bond in Tokyo? Upsiding in Vancouver? Windfall tax in Xuzhou? Yield curve risk in Zurich? 

Marsh Center for Risk Insights Launch

September 6, Insurance broker Marsh & McLennan launched a new non-profit group called group called the Marsh Center for Risk Insights in order to educate business leaders about risks that can threaten their business.  

Headline: “Fortune 1000 Companies Making Limited Preparations for Risk.”

Highlights of the findings include: *A lack of access to fresh water would have catastrophic affects on nearly 50% of the businesses surveyed. However, few businesses have taken steps to prepare for a water shortage. *Half of senior executives surveyed do not believe it’s likely global climate change will result in long-term environmental and economic impacts. *Less than one-third of the respondents see a pandemic disease outbreak with a high worldwide mortality rate as having a severe impact on their business. 

Its initial report is based on a survey of 101 executives and managers from Fortune 1000 companies on their perceptions of the biggest risks their companies face. The top risks executives said they are worried about are such natural disasters as earthquakes, hurricanes and floods, along with terrorist attacks, rising oil prices, and global climate change. More than 90% said their companies have taken some steps to prepare for one or more of the crisis situations.

Type T Behavior: Thrill Seekers

Type T Behavior: Thrill Seekers Article highlights by David Crary from Associated Press, September 8, 2007, “Risk-Takers: What Makes Them Tick?”

Temple University psychologist Frank Farley is a past president of the American Psychological Association who has extensively studied risk-taking. He says it is an aspect of human nature with both positive and negative sides. For example, he said a significant amount of crime is motivated by thrill-seeking impulses. “Often the people who are not the thrill seekers look at that behavior and say, ‘They’re crazy,’” Farley added. “In fact, it’s the impulse that created the modern world — it’s the force of inventiveness, creativity, individuality, change and survival.” 

Farley says researchers who categorize people at Type A or Type B personalities should add a third category — Type T — for thrill-seekers. Many psychologists have linked contemporary risk-taking to patterns of social change. Those who perceive today’s world as too predictable and safe may be tempted to seek an outlet in the form of extreme sports such as parachuting off cliffs or snowmobiling on avalanche-prone mountainsides. Others take risks in a quest to set records — to be the youngest, oldest or first of a certain category to accomplish a particular feat, such as circumnavigating the globe alone. 

“In our modern world, we’ve eliminated a lot of risks and threats that our ancestors faced,” said Daniel Kruger, a research scientist at the University of Michigan’s School of Public Health. “People might seek these thrills because their current environment is so safe it’s not giving them the same stimulation.” 

Both Kruger and Farley suggested that risk-taking, in its positive form, can correlate with business and financial success. Recalling a talk with Fossett about adventuring, Dunn summarized his friend’s attitude: “If you do these kinds of things and you do them well, it’s the same sort of philosophy you need to succeed in business or to succeed in life or to succeed in marriage or to succeed in anything, because you have the tenacity and you have the focus and you have the direction to do that.” 

PricewaterhouseCoopers and *connectedthinking

PricewaterhouseCoopers marked its fifth year as a Proud Partner of THE PLAYERS Championship, featured it’s *connectedthinking ad campaign, and positioning statement – the way the firm tells its story and demonstrates its difference.

According to Brandsandbranding, “Connected Thinking is the standard of excellence that distinguishes the firm in the marketplace and supports its strategic growth as it moves forward. Connected Thinking articulates what the firm does and what it can accomplish when its people perform at their very best – when its breadth of service, depth of expertise and geographic coverage are leveraged to serve clients’ needs.”

Some examples from a current or prospective client: Great advice comes from Connected Thinking. How?

*We bring you the best thinking by working together, across industries, territories and services.

*We bring you a wider understanding of your issues, by looking at them from a number of angles.

*We manage how our actions in one area affect the rest of your organisation, by understanding your business in depth and as a whole.

*We help solve our clients’ issues by applying best practice solutions across all divisions.

*We help you learn from best practice, by linking our experience and thinking within and between industries.

*We make sure the value and trust we build for you will keep on growing, by balancing your short-term needs with long-term goals.

*We find fresh approaches to your issues, by stretching each other to develop new perspectives that challenge our, and your, thinking.

Definition of Systemic Financial Risk

Textbook definition of Systemic Financial Risk, taken from: “The Group of Ten: Report on Consolidation in the Financial Sector”: 

“Systemic financial risk is the risk that an event will trigger a loss of economic value or confidence in, and attendant increases of uncertainty about, a substantial portion of the financial system that is serious enough to quite probably have significant adverse effects on the real economy. Systemic risk events can be sudden and unexpected, or the likelihood of their occurrence can build up over time in the absence of appropriate policy responses. The adverse real economic effects from systemic problems are generally seen as arising from disruptions to payment systems, to credit flows, and from the disruption of asset values.”

Moody’s: Market turbulance and systemic risk

Moody’s: Market turbulance and systemic risk. In a report issued by Moody’s Investors Service: “Another False Alarm in Terms of Banking Systemic Risk but a Reality Check”: financial market commotion exaggerating risks but forcing important reality check; shock-absorption capacity of financial system in focus; sub-prime troubles not systemic in intensity. 

Some observations by Pierre Cailleteau, Moody’s chief international policy analyst:

“In addition, in the current macro-economic and financial environment characterised by ample liquidity, there continue to be marginal risk-takers ready to pick up assets at adjusted prices. As such, the current episode does not seem to raise genuine systemic risk concerns, with Moody’s core bank ratings displaying a high degree of resilience in this regard.”  

Second, and more generally, the combination of a significant wave of financial innovation with a relaxation of risk management/underwriting standards has proved to be a dangerous cocktail. “A normalisation in risk appetites will help, but the cautionary tale is that many of the observed deficiencies are likely to be enduring features of our environment — such as the inability to track risk accurately and predict risk crystallisation at times of stress, the recurrent lapses of market depth and the challenges of valuing highly customised products,” Mr Cailleteau says. “This, with hindsight, is the lasting lesson of LTCM.”  

“In an environment where insecurity is unlikely to disappear, the existence of capital cushions and strong liquidity management at financial institutions is critical. Banks and regulators should not lower their guard.”  

About Moody’s Investor Service: Moody’s Investors Service is among the world’s most respected and widely utilized sources for credit ratings, research and risk analysis. Moody’s commitment and expertise contribute to stable, transparent and integrated financial markets, protecting the integrity of credit. In addition to our core ratings business, Moody’s provides research data and analytic tools for assessing credit risk, and publishes market-leading credit opinions, deal research and commentary, serving more than 9,300 customer accounts at some 2,400 institutions around the globe.

What risk managers have learned since the shock of 1998?

Michael Gordon, Chief Investment Officer at Fidelity International, writes in a recent FT article: “Market insight: What risk managers have learnt since the shock of 1998” 

Some questions: Does the collapse of confidence in the US subprime market have any similarities to the collapse of Long-Term Capital Management in September 1998? Have product innovation and industry consolidation helped create greater resilience across the financial system? 

Part of the answer: “The subprime woes look a good candidate for the party-pooper, but if history teaches us anything it is that the biggest threats to markets are rarely the obvious ones.”  

“Strategic Risk Taking: A Framework for Risk Management”

Strategic Risk Taking: A Framework for Risk Management 

By Aswath Damodaran, Professor of Finance at NYU’s Stern School of Business:  

“In business and investing, risk has traditionally been viewed negatively: investors and companies can lose money due to risk and therefore we typically penalize companies for taking risks. That’s why most books on risk management focus strictly on hedging or mitigating risk…But the enterprise’s relationship with risk should be far more nuanced. Great companies become great because they seek out and exploit intelligent risks, not because they avoid all risk. Strategic Risk Taking: A Framework for Risk Management is the first book to take this broader view, encompassing both risk hedging at one end of the spectrum and strategic risk taking on the other….World-renowned financial pioneer Aswath Damodaran–one of BusinessWeek’s top 12 business school professors–is singularly well positioned to take this strategic view. Here, Damodaran helps you separate good risk (opportunities) from bad risk (threats), showing how to utilize the former while protecting yourself against the latter. He introduces powerful financial tools for evaluating risk, and demonstrates how to draw on other disciplines to make these tools even more effective.”