Risk Management Problems Are Culture Problems
“Risk was not integrated but split between a credit risk officer and a market risk officer, both of whom reported to the CFO, who then reported to the CEO. That may work at a place like Goldman, where decisions are made collectively among executives. But at a firm with a strong-willed CEO, like Merrill, it can backfire. People close to Merrill say that even if Edwards [CFO] saw the risk, contradicting then-CEO Stan O’Neal was a dangerous game.”
This quote from the CFO magazine article on risk management on failing (Goldman) and successful (Merrill) banks, reveals a problem with many high profile, high impact projects; i.e., organizational culture trumps structure. Fear of contradicting a leader can drive a company in the wrong direction, even with a seemingly good reporting structure.
All this talk of organizational structures, reporting relationships, and bringing credit risk and market risk functions together can’t hide the culture problems that are behind the subprime mess. It’s really very simple, the CEOs let it happen. They risked their firms betting on extremely risky investments.
What do you think? And how does the concept of risk management apply to your business? Are you pursuing risky projects that could have a severe negative impact on the business?
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Tags: banks, CFO, credit risk, credit risk officer, Goldman, marketing risk, Merrill, PMO, project-management, projects, risk, risk management, subprimeRelated Stories
POSTED IN: Industry Specific, Leadership
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