Your Views On Risk
1. 'We will always have 'rogue traders' causing huge losses (the ones who make money for their firms, of course, are not considered rogues - just get a bigger bonus) unless banks change the way they think - in silos. The Kerviel saga wouldn't have been possible if more areas of SocGen were able to see the alarms that were triggered well before he was uncovered. A firmwide approach to operational risk management is required'.
2. 'Anybody can talk about risk. However, the current crisis is clear evidence that not many (if any) senior executives actually understand the true nature of it. Furthermore, pay is obviously geared towards revenue generation, and thus the brightest and the best avoid areas like risk management like the plague. Perhaps it's time to rethink the way we reward risk professionals'.
3. 'A CEO should be responsible for devising the overall strategy of the firm. Micromanaging risk managers will take precious time away from this important responsibility, and sends a message that the boss doesn't trust those he has chosen to get on with their jobs'.
4. 'There is definitely a tendency to reward positive P&L, no matter where it comes from. And many of the bosses who got promoted for raking in short-term revenue gains don't have the full picture, don't know what their traders are doing and have no real understanding of risk itself. And very few senior executives comprehend risk, with many having to rely on the very traders taking the risks to explain it!'.
5. 'The role of the CEO and senior management is to enhance shareholder value. This can take on many forms, but the most obvious is to increase the firm's share price. Under 'normal' market conditions, share prices are 'driven' by profits or revenues (or the expectation of revenues). Risk has a significant impact on revenues and profits (positively and negatively). CEOs should therefore ultimately be responsible for risk management, as the likes of Stan O'Neal, Chuck Prince and Peter Wuffli found they were when their firms got it badly wrong'.
6. 'There is a fundamental problem in all investment banks - individual reward is potentially so large that front office professionals can make enough money in just one cycle to last them a lifetime. There is now a complete disconnect between personal incentives and what is good for the firm. Banks need to come up with a more effective way of compensating staff, and this must be geared towards LONG TERM performance'.