Are Risk Managers Dangerous?
CARR and The Economist, LSE, October 2004
Opening the debate, Mike Power of CARR portrayed risk managers as "cosmetic, legalistic and concerned with appearances". In contrast, Reg Hinckley of BP thought the overall effect of risk managers was, on balance, positive. They had contributed to the quantification of risk, and had at least prompted the 'right sort' of boardroom discussions.
Avinash Persaud put the case differently: risk management wasn't working. Risk management should ensure that risks are distributed according to the ability to carry risks. In practice, risks are being transferred from those, such as banks, who can afford to take risks, to members of the public who cannot. Likewise, a 'one size fits all' mentality among risk managers had the perverse effect of destroying the diversity which successful risk management values, and increasing volatility.
A somewhat equivocal response was provided by Thierry Van Santen of Group Danone: the problem was the failure to distinguish between compliance and risk management. The job of the latter is to identify good and bad risks - since the company which takes no risks has no future.
A hand count of the audience suggested that the proponents had succeeding in convincing a majority that risk managers - the minority, perhaps? - were indeed dangerous.
Professor Avinash Persaud, Investment Director, GAM London Ltd,
Professor Mike Power, PD Leake Professor of Accounting and Co-Director, CARR,
Dr Reg Hinkley, Commercial Director, Integrated Supply and Trading, BP,
Thierry Van Santen, Corporate Risk Manager, Group Danone
Howard Davies, Director, LSE