Saturday, December 18, 2010

Estate Planning and the Economic Legacy of the Entrepreneurial Spirit

There are various methods by which assets can be bequeathed by a would-be-decedent to his inheritors. A business enterprise, however, may need to be ported across generations through a corporate mechanism, since issues on estate taxation, business stability, asset partitioning, and continuity may arise. Indeed, successful and profitable businesses are worth preserving. Businesses are a class apart from simple independent assets since they are coordinated amalgams of assets that are intertwined by systems, processes, management, and human resources. Furthermore, they are critical to the national economy because they provide employment. The entrepreneurial spirit and the middle class are the backbone of a capitalist and democratic economy. Continuity of the economic legacy is an incentive to all those who choose to pursue an entrepreneur's profession. This naturally involves skills in spotting opportunities, innovation, management, and a visionary's disposition, without these, the standards of living will not progress and industries will remain stagnant.

Succession planning via a corporation allows the abstracts of entrepreneurship to survive through generations. Although the passing-over of the economic legacy is a given, the most important aspect of succession planning comes with the progress of the socio-economic framework of the country through the enabling auspices of the leaders of commerce and industries.

All compositions, statements and opinions of the author are copyright © Earl T. Malvar 2009-2010. All rights reserved. There is no honor, respect, admiration, intellectual and academic dignity garnered through plagiarism.

Of Pride

If you've ever read a Marvel comic book that featured the being known as The Watcher aka Uatu, then I'm pretty sure you're familiar with the policies that entailed his job, i.e. pure observation and non-interference upon events (although after reading some notes from Wikipedia, I've discovered that he had actually violated the policies applicable to his race). I, for one, have found it an entertaining pass time, if not a habit, to be as observant as I can be of people, events, and the dynamics that intertwine circumstances all around us. It can indeed be pleasurable and enlightening to observe and analyze, while not necessarily criticizing and judging how people think, act, react, and behave. For friends who might read this entry and find this hobby of mine unnerving, I assure you that this is in no way a malicious or voyeuristic fetish that I have grown accustomed to nor is it something that should be labeled as such. I'm sure a lot, if not all people, practice this. It is inevitable for people to use their sensory and empirically-oriented faculties, as well as their intellect, to observe and react to what the world around is presenting to them. There is no way to escape from it, unless you are in a comatose state, then again, dreaming can still provide the input. The key difference is perhaps on what people do with the input, do we judge; do we generalize; do we analyze; do we use our biases; do we criticize; do we keep the thoughts we come up with to ourselves; do we share it with others; do we rumor-monger; do we snitch on others; do we appreciate; do we hate; do we empathize; do we sympathize; do we laugh at; do we ignore; do we build ideas on; do we learn; do we...It is a tricky activity indeed to have the knowledge and information and to have the free-will to choose what to do with them; after all, knowledge is power. People, collectively, society creates the reality and belief system we perceive and conceive them to be. It is what Stephen Colbert termed as wikiality and truthiness. Although, indeed there are cold hard facts and truths out there, empirical evidence and the scientific method are only as credible as the media and avenues by which people are informed of these data. And I guess that’s why they say the victors write the history the way they want it to be when the dust settles after a war. That's how powerful the human mind can be, more so if a lot of it are amalgamated to some creature that no one person can define given the inevitability of change and haphazard reactions.

So what have I learned after being the ubiquitous observer that I am? Even before moving forward, let me set the tone for this piece of article. I have read or heard somewhere (I really don’t know which) that you can win readers/observers by not being preachy. People don’t really appreciate being told of things or what to do with certain ideas, especially when they are not really asking for some form of advice at all. It strikes a nerve, it affects the ego. It is a conversation worth ignoring and forgetting. So let me clear the air and tell you that I’m sharing this like a friend who would tell a story during lunch.

I have found that pride and insecurity drive and affect the actions and reactions of people. You don’t have to believe me, but it might be nice to keep it in mind when you try and observe other people. Sure there are other “sins” out there, but pride is a different breed in my opinion, because it is interestingly attributable to both good and evil. Let’s list the 7 deadly sins before moving on for the sake of just enumerating them, lust, gluttony, greed, sloth, wrath, envy, and pride.

From what I usually hear, greed is a major force in bringing-out the worst in people. Money might be the object, but the undesirables do not emanate from it. It is rather the attitude toward it. If there was no legal tender to move around an economy and people bartered items, then the excessive desire to accumulate as much pig tails and cowhide is as corruptive as the greed for money.

So where does pride step-in amidst the influences of greed? Pride is a form of motivation for a person with an ego. We all have egos. We don’t have to explore the sex-violence concept of Freudian thought to acknowledge the fact that people have needs and also wants/desires. While, every human being deserves dignity and respect (a constant lesson taught even by the Catholic Church), the dynamics of social interaction, I think, also bring about a sense of insecurity and varying degrees of contentment and confidence, which all influence how “greedy” a person can be. I read somewhere a long time ago that a Satanist doesn’t necessarily entail being a worshiper of the devil or to be an occult practitioner, all it takes is absolute obsession and love for one’s self and not giving any damn for anyone else. So, there you go, the ultimate practice in pride, a love for only the self. Come to think about it, it is a despicable attitude indeed, but that’s just my opinion. I recall that Christian teachings usually refer to the pride of man as the primary reason for his loss of favor in the eyes of God, the pride to be greater than what has been bestowed upon him by the generosity of God.

Greed is an extension of pride. When people are insecure, people tend to hoard-up for a rainy day. People are imperfect beings indeed. We feel inadequate and unworthy, our pride/our egos are hurt when we feel like our self-dignity is being attacked or reduced below someone else.'s No one deserves to be labeled as someone less than what he thinks he is. Why do political advocates fight for their beliefs, whether it be democratic or communist in principles? Ultimately, it is the pursuit for equality, whether it may come from a socio-economic or socio-political standpoint. We look for a place of solitude and comfort. Of course, there are those who do not really want equality, but want more. Can you say pride? People attribute self-assurance and security to objects of value (gold, stocks, money, etc.) and positions of power. And even when someone who is good natured, but due to circumstances is richer or loftier in position (whether in truth or based on perception), comes around, people who are in a lesser status and who are unfortunately insecure about themselves, tend to fire the first shot (whatever that form of a shot is). Insecurity breeds contempt, no matter how unjustified. There is paranoia involved and it becomes a vicious cycle. The insecure hating the insecure and the insecure hating the insecure, well you get the drift. Through this way of thinking, I was able to get a clearer understanding of the wisdom involved in what Yoda said regarding Anakin. Fear leads to anger, anger leads to hate, hate leads to pain and suffering. Fear is a very basic instinct indeed and it can be translated to some other term we have been using in exploring this topic, i.e. insecurity. Pride and insecurity can be a poisonous mix. I also heard of some joke in a sitcom before, that it is good parenting to make their children insecure, the more insecure a child is, the greater of an achiever he would be in the future. Insecurity is indeed a devastating tool for people to use and we are all susceptible to it. That’s why people can’t help but justify their actions amid an audience of listeners/readers, whether willing or not. That’s why people tell everyone they can about their achievements, the jobs they do, the positions they hold, the people they know, the cars they drive, the things they’ve done, the schools they’ve studied in. In a very judgmental world, there’s nothing else to do but fortify our credentials and make sure we are as secure as possible. Whenever malice comes in to the picture, no matter how secure a person thinks he is, whenever another person comes to the scene and seems to present a degree of confidence in himself, even if he does not boast about his credentials – sillier if there was nothing to be obnoxious about in fact - would be subjected to attacks motivated by insecurity. But before we write-off pride as something undesirable and evil, I must say my piece on how pride defines the progress of mankind. Pride pushes people to their limits, in terms of physical capabilities, will, and intellect. Pride allows civilizations to advance. If people didn’t have pride and people over-emphasized on “contentment”, then we would all be sloths. We would be swaying to the will of the wind and accepting events and circumstances as random inevitabilities that cannot be circumvented or challenged by man’s ingenuity, intellect, and innovativeness. Pride is extremely evident in our hobbies, our crafts, and in sports. So why do sports serve as such useful tools in politics, i.e. think ping-pong politics between the U.S. and China; basketball between the U.S.S.R. and the U.S.; among other sporting events that happened despite the political tensions between the opposing sides? I think it’s because of the acceptable scenarios in the paradigm. Two groups go on head-to-head given certain rules and procedures and the game goes on gruelingly, but on the back of the minds of both groups, they know the reality, the inevitability when they submitted themselves to the match, there will be a winner and there will be a loser, but in the end, after the hard struggles during the game, the spirit of sportsmanship conquers. Pride motivates a player not to lay-down and let the time just run-out, even when he knows they’re down 40 points. There is something fascinating about pride because it allows man to achieve so much despite the odds and the perceived impossibilities. Who would’ve guessed more than 100 years ago that man could achieve heavier than air flight?

So after all the analyses, have I learned something from my observations? I would like to think so. I have been a believer of the middle way philosophy for quite some time now. Ultimately, I think there is discord brought upon by extreme resolutions and attitudes when dealing with circumstances. I have also learned that there is wisdom in living with the dual principles of confidence and humility. These two principles are a beautiful pair, I believe, because it combines the modern teachings introduced by The Secret, John Maxwell, Mr. Jhun Benedicto =), among other gurus and even reality TV shows, that tell of ways on how to achieve success and fulfillment; humility meanwhile is best depicted by the life of Jesus Christ and the teachings of the Church. Through experience, however, I have found that humility in silence, candidness, and nonpartisanship does not sit well with most people and those unfamiliar with the practice very often misinterpret the intentions and the beliefs underlying it. The reactions of people to the practice are often influenced by their insecurities and how used to they are to the conventional reactions they have been accustomed to. The practices of over-assuming, deductive reasoning, and intuitive guessing are the means by which stereotypes, misconceptions, and misunderstandings between people begin to corrupt the interaction of what would have otherwise been a non-malicious encounter. I am still a student of this dual philosophy and I must admit that it is always a learning experience amidst the influences of pride and insecurity, but with confidence and humility, anxieties are always reduced and the best part is probably the achievement of peace of mind. To be at peace with one’s self and with others are results which I think are attainable by practicing this dual philosophy. Malice and anxiety seem to dissipate when you alter your perception and way of thinking. Again, that is how powerful the human mind can be. All everyone needs is an open mind.

Perhaps the most valuable lesson I have found and I can humbly impart as well is the value of open-mindedness and respect. While people are undeniably different in various aspects and in the levels of their talents and intelligence, everyone has something unique to bring to the table. Individualism is valuable, but towards goals and purpose, the collective strength of the many trumps all. By accepting this reality, people can find solitude in their personal dignity/pride. They don't have to be so self-conscious and insecure that malice and misinterpretation will continue to plague the thoughts, activities, and decisions people observe from others - as if there's always a hidden agendum or message against them. Corollary to this concept is the pride and fulfillment achieved by people through hardwork and humbling lessons brought by experience, AND NOT JUST BY the pride brought upon by innate and congenital talents and blessings, whether preordained by some higher Order/Being or the circumstantial convergence of random factors and probabilities. The prima donna mindset is what often corrupts the well-off/blessed and irks/irritates other people. There is indeed value in harnessing attitude and perception. Anything that is earned dissipates insecurities and cultivates positive pride. That's also why I think thieves and cheaters will always feel inadequate about what they have accumulated/attained. False pride in no way solves the problem of insecurity, it just makes these types of people more insecure and so they try to cover their flaws-up even more. That's why, in sports or in taking basketball as an example, the greats and hall of famers who didn't win a championship ring do not feel less about their accomplishments. They gave it their all and they accepted the fact that that they didn't get themselves in the proper situation/opportunities to win a ring, even though they possessed immense talents. There is indeed fulfillment in what is properly earned. Of course all these thoughts are but humble opinions that people may or may not agree with. After all, I am just a speck in the continuum as anyone else.

As a side discussion, I have always heard of criticisms regarding the Catholic Church’s vast wealth amid the poverty around the world. If the Catholic Church was really authentic, it would’ve given all its riches to the poor, right? Otherwise, it would just be a hypocritical institution. These arguments might have a point, but I for one believe that there is wisdom in what the Catholic Church is doing in managing its wealth. The Church is after all operating in an economic and social paradigm that requires power, influence, and money. What authority and ability would an institution that is known to represent the Son of God then wield if it succumbed to economic poverty? Would there even be respect or credence for its beliefs and teachings? Unfortunately, for the Eastern Orthodox Church, that is precisely what is happening. The Turkish government already has this Church by the neck because they have a rule that the Patriarch must be a Turkish citizen. Turkey is a predominantly Islamic country by the way. So bit by bit, the social and political pressures are chipping away on the foundations of this Church, although no direct siege is being done upon its institution.

All compositions, statements and opinions of the author are copyright © Earl T. Malvar 2009-2010. All rights reserved. There is no honor, respect, admiration, intellectual and academic dignity garnered through plagiarism.

Wednesday, September 1, 2010

A Review of Enterprise Risk Management – A View from the Insurance Industry by Wolfgang Errath and Andreas Grünbichler

I. The Contents

In elaborating the concept of Enterprise Risk Management (ERM) as applied on the business model of the insurance industry, the authors’ review of Zurich’s Enterprise Risk Management Framework revealed a close resemblance to the EU’s Solvency II regulatory model. Which of the two came first, the proponent does not know, however. Enterprise Risk Management (ERM) is a holistic treatment and management of risk through which all organizations can align their strategic and operational policies onto in order to achieve their respective goals and objectives. The authors, first off, established the basic precept of risk management, which is its role as an instrument/function of an organization amid an ever changing environment. The paper dubs risk as a function of change, which more so highlights its importance, with change being such an inevitable aspect of life.

Early forms of risk management were mainly designed for monitoring risks and as a means of compliance to regulatory recommendations and statutory mandates. While these roles were being fulfilled, risk quantification also became a task corollary to following the guidelines set by management and public authorities. Risk management’s functions further expanded as it bore the responsibility to hedge and mitigate risk exposures of the organization, which may involve execution of transactions and arrangements that aim to bolster the risk-return profile of a company. The paper highlights the fact that risk management has evolved from taking a passive position to a more active role in business strategy and decision-making.

Enterprise Risk Management (ERM) found support not only from internal management, but more so from external stakeholders, who may not have had the proper avenues and facilities by which to ensure that their interests were protected. Rating agencies have developed different ways by which to integrate Enterprise Risk Management (ERM) to their evaluation models. Some have used their own capital models, some have utilized models developed by insurance companies, while others have developed their own stochastic portfolio models. Regulators and public authorities have also played a critical role in putting risk management in the mainstream of business practices. Switzerland, for one, has legislated insurance laws and other business-related statutes embedded with risk management requirements. Under the Federal Office of Private Insurance (FOPI) directive 15/2006, risk management inculcation among employees is a requirement and risk management oriented strategies must be introduced. The Swiss Solvency Test (SST), an economic capital model, was mentioned as becoming an integrated part of a new ERM framework. The EU’s Solvency II, a 2007 document by the International Association of Insurance Supervisors (IAIS), and a 2004 ERM framework by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) are models by which Enterprise Risk Management (ERM) has been refined under an academic and professional approach.

Under the Enterprise Risk Management (ERM) Framework of Zurich, which is a financial services organization with exposures to the business of insurance, the company intends to protect its capital base while finding an optimal risk-return profile for itself, enhance value creation, provide support to decision-making through useful information, and protect its brand and reputation by inculcating a culture conducive to nurturing risk-professionals and practitioners. The company recognizes the integrated influences that can find benefit through the implementation of an Enterprise Risk Management (ERM) framework. All stakeholders will not only perceive, but also experience a form of stability and order brought upon by the discipline of risk management.

The Zurich ERM Framework is structured as a 3-pillared structure, consisting of a base and 3 supporting pillars that hold-up a figurative roof. The base represents Risk Governance and Culture, which requires that all members of the organization be aware and educated on the concept of risk. This knowledge is expected to trickle down from the leadership of the organization to all employees. The establishment of a risk culture can best be facilitated through the institution of an independent risk unit, which also possesses degrees of authority and influence in decision-making and strategy formulation. The function of risk management must permeate through the figure-heads of organizational authority (i.e., the BOD and senior management). The documentation of risk-related policies and management authority limits reflect on the organization’s commitment to handle risk in the most systematic means. The drafting of a uniform risk management framework that all members of the company can defer to, while developing a common risk-management-oriented language are seen to help put emphasis on the importance of ERM to the success of the company. When talking about a culture of risk management, it means establishing a mechanism by which all members of the organization are constantly made aware of the company’s status, situation and exposures when talking about risk.

The first pillar of the framework pertains to risk quantification. Measuring risks has been a key function in the financial industry, which normally puts importance on knowing the financial exposure/s of a firm given a certain position during a certain period. The authors mentioned that risk aggregation or proper organization of single risk exposures is critical, since ultimately it will reflect on the results. Aside from arranging data with the intent of interpreting them, it is, of course, critical that the items comprising the data were properly collected. There are a myriad of methods to acquiring data, but it is important to be consistent, reliable, and accurate in getting them. The authors add that scenario analysis can serve as a useful tool in evaluating the data since these will eventually be translated into strategies and business decisions that will ultimately affect the firm’s business policies and performance.

The second pillar of the framework involves a qualitative directive in evaluating risk. Risk management operations deal with policies, mechanisms, and manpower. In the context of the insurance industry, financial and operational risks have become focal functions. Actuarial operations, being a unique aspect of the insurance business, have also been given a greater amount of attention. Risk management can be localized or centralized, which means there are locations wherein first hand handling is a must, while there are instances wherein aggregation and standardized decision-making is the most beneficial to operations. In a range of risk management functions, synergy is a desired product through which organizational objectives can be achieved. Internal controls and human judgment are key factors that organizations ought to develop if it is to better promote the qualitative aspect of risk management.

The third pillar of is risk communication and disclosure. Transparency has been a great deal of interest to most parties who have had minimal access to certain aspects of company operations. These parties are usually top management, regulators and external stakeholders, who all have an interest in ensuring that everything is running smoothly and in accordance to the policies and internal controls set for compliance by all. A structure for internal communication is a facility by which information dissemination, data evaluation and decision making can pass through in order to preserve the stability of the company. External stakeholders and regulators, being unfamiliar with certain day-to-day and internal activities of the organization, would require a means by which they can scrutinize for themselves the choices and policies made by the company. Risk information disclosure through annual reports, documents and presentations are some of the ways by which risk-related issue can be made known to those who have a degree of interest to know.

Strategic risk management under the Zurich framework figuratively represents the roof of the model. Enterprise Risk Management (ERM), being a holistic and all-encompassing approach, is a means by which a coordinated type of strategy can be developed and implemented by the leaders and authorities of the organization. The risk-return profile of a company is usually a by-product of a myriad of choices and decisions made by those who have the authority to do so. The preferred risk appetite must therefore be aligned with the actual risk-return profile and there is no better means by which to match these two than through Enterprise Risk Management (ERM). Risk management stands as a function and discipline by and through which company objectives can be realized, while insuring that these were achieved without sacrificing the stability of the company (i.e., getting to the finish line at all costs and incurring collateral damage along the way).

The authors have portrayed Enterprise Risk Management (ERM) as an optimal framework that involves an immersive approach towards integrating the discipline of risk management to the culture of an organization. They see a strong link among risk management, value creation, and strategic management in the coming years. Internal risk-based capital models are one of the definitive tools by which risk management can be promoted, especially in insurance companies.

II. Personal Assessment/Insights

Much has been written about Enterprise Risk Management (ERM) in recent years and I have found it almost cliché-like, over-worn and, most often, an over-referred-to organizational philosophy that a lot of uninitiated people simply find convenient to mention and pertain to in most management discussions. It is extremely simple to make an elaboration of how properly handling risks in a holistic manner can bring about success in one’s business model, kind of like when a business promoter/proponent finds ways to dazzle potential investors by saying how a gamut of opportunities can be found in an allegedly profitable business proposition and would simply need some funding from some committed financier. After all, in deference to the risk-return concept, the talk about maximizing returns is indeed an endearing topic to consider and has often been the case in many board rooms and executive management meetings, on the other hand, this unraveling passion and motivation to explore the techniques by which to manage and minimize organizational risks can indeed be overwhelming to those who have paid little attention to it before as a useful business management discipline. Of course, for those who concern themselves with the business of risk, most importantly the insurance professionals, it can be said that there are nuances to treating risks and these can at times inevitably refer back to the insurance industry’s familiarity and expertise with risk management, quantification, monitoring, pricing, mitigation, transfer, among other means of treatment, that Mr. Pedro Benedicto, an insurance industry practitioner and academic professor of mine, once said as functions and activities done by some of the world’s very first financial engineers (i.e., insurance underwriters).

Risk quantification can be a tricky business. Just as, in my opinion, accounting seeks to develop models and philosophies by which to quantify objects and transactions of interest to businesses in order to standardize account name treatment, management, and regulation; risk management, too, faces the same challenges. Translating something so intangible, in view of risk being contingent and at times immeasurable in terms of scope, gravity, and extent, can be exposed to the vagaries of human perception and judgment. Standardization is indeed critical, if it is to become an authentic management discipline, if not a professionalized science. In this thrust, however, I believe lies the philosophical aspect of risk management. While risk is affirmed to be present, it only asserts its existence when it is known and recognized by those who concern themselves with it. The extent of risk covers only as wide as the area by which man chooses to put his interests on. An astronomical phenomenon that may lead to a destruction of a planet or two halfway across the galaxy is beyond the concern of any man, unless it has any repercussions, direct or indirect, to any of man’s social, economical, commercial or other endeavors of interest that he reaps some form of benefit or satisfaction from.

As the paper mentioned, rating agencies have found interest in integrating a Enterprise Risk Management (ERM) criterion to their requirements and have found use for it as a quantitative and qualitative tool in assessing an organization. This perhaps stems from a belief that although they have metrics by which to measure the financial stability of a company, they are short of ways by which to evaluate the “synthesized” quality of an organization. Operational and strategic management can be varied across periods of time, but risk management is reflective of the extent of over-all quality that an organization emphasizes when it conducts its business dealings.

One concept that I find interesting in the Enterprise Risk Management (ERM) framework is the qualitative pillar. This is an aspect that represents one true challenge towards achieving a standardized risk management discipline. The human factor is especially difficult to quantify since many variables interact within and among people of different backgrounds. Where there are focal points of decision-making and human judgment involved, the degree of quality will eventually revert back to the degree of appropriateness that a person possesses vis-à-vis his position’s roles, the duties, responsibilities, and even the prerogatives it entails. A chain (i.e., the mechanisms, policies, systems, internal controls in place) is only as strong as its weakest link (i.e., people being subjective and unpredictable individuals). While there may be times that a person will report-in for work and do the routine role he was assigned to do before checking-out at the end of the day, an employee is not like a simple gear that can be replaced when the machine grinds to a halt nor is he predictable like the movement of a piston. Personnel matching, training, and risk management inculcation are integral in assuring that quality is preserved in an organization’s operations.

Enterprise Risk Management (ERM), if it must be said again and again, is a holistic approach to orchestrating organizational success. Amid a very dynamic environment filled with threats and opportunities, risk management stands as a discipline through which a company can be assured of both protection and stability. While it may seem like it is barely a money-making function at all for most generic structures of organizations across different industries, it has its indirect purposes in assisting towards a more profitable future for all stakeholders. Risk management, of course, is at a different level all together when exploring the intricacies of an insurance company’s operations. The insurance industry has prided itself in identifying risks and finding ways by which to handle them for decades. Close-minded organizations may find it comforting to simply run away from risk exposures once they see them, but it can be said that there is no running away from risk. Risk is all around as long as people undertake profitable and beneficial endeavors in human society and in business and commerce. Organizations that do not find value in risk management might one day find themselves in a pincer or worse yet surrounded by risk exposures that will ultimately overwhelm their resources, manpower, and company policies; to their demise.

As a recommendation, this proponent would deem it very productive to have an initiative on creating various Enterprise Risk Management (ERM) frameworks applied to different industries in the Philippine context. Risk management has yet to see itself blossom in the Philippines. This may probably stem from the fact that our domestic insurance industry has not found its professional stride, whether in conduct nor in portraying itself as such through the years. In fact, it seems that it has deteriorated as revealed by a study made by Mr. Benedicto regarding the pricing of insurable risks. To have an appreciation of risk management in various industries and sectors of business in the country, a showcase of the insurance industry’s capabilities is a must. Insurance is a key component in building an economy. Why? It brings about security in both social and commercial endeavors and undertakings of interest. It allows otherwise risky and therefore costly infrastructures to be raised without fear of some bungled engineering wiping-out everything. It allows daily business dealings to be done without the constant fear or anxiety of having to face costly litigation in case awry and mutually undesirable events occur. It prevents unfortunate circumstances that might surround a citizen or organization dissipate. It allows citizens to go on with their daily lives and not abruptly and tragically be hindered by fortuitous events that all too often happen to the least suspecting, well meaning, and unprepared of good-natured people. These people with hopes and dreams of their own do not deserve to be castrated by the whims of chance and by the astronomical phenomenon of randomness. While people may possess free-will, they should be given the proper choices and avenues by which they can exercise their power to choose. Insurance and risk management, in the opinion of this proponent, are extensions of free-will and freedom.

All compositions, statements and opinions of the author are copyright © Earl T. Malvar 2009-2010. All rights reserved. There is no honor, respect, admiration, intellectual and academic dignity garnered through plagiarism.

Wednesday, July 28, 2010

On the Entry of Fil-Foreign Players in Philippine Basketball

IMO, this might as well be referred to as the globalization of basketball. Similar to the tritely mentioned concept of globalization in transnational commerce and trade, the removal of restrictions and barriers of entry to foreign goods and services can only lead if not coerce the domestic market/the locals to keep-up with the level of quality brought in by other cultures, nationalities, races and backgrounds. If you fail to keep-up with the rest of the world, you drift and fade to irrelevance, rejection, and dejection. If we put this in the context of basketball talent, we (Filipinos) are perhaps ill-informed, and dare I say living an illusion, if we still think that we are a basketball superpower in the world, not to mention in our very own region, Asia. We need to keep-up with the global trend. After Croatia, Lithuania and the other basketball nations of the Soviet bloc a few decades ago, countries like Greece and Spain have shown some sparks of brilliance in pitting themselves against USA basketball. And oh, don't forget South America's Argentina. I don't even have to question if Filipinos have the passion for this sport. We obviously do. Is the drawback really perhaps genetic? Then again, we have always been a tolerant and hospitable culture and we do embrace those trickles of assimilated genes to our country's DNA pool. Aside from this of course, I think, is the mindset of the culture in breeding basketball positions. Percentage-wise, there is no arguing that we have a populace with heights comparably shorter to the average citizens of other countries (I can't really say people from the West, because China has been parading 7 footers as well). Let me cite an example, supposing we have 10 players on court (it doesn't have to be some serious hoops session, let's just talk about some everyday playground basketball), all are just in high school, 7 of these guys are standing 5'7" and below, 2 of them are around 5'10" and one is at 6'2", guess what happens? The small guys force the "bigger" guys to stop trying to dribble and handle the ball. They force the "taller" guys to familiarize themselves in the paint, even if let's say the 6'2" guy has been practicing his handles and looking ahead to becoming a guard like the guys he watches on NBA TV. That's how we end up with 6'3" to 6'6" centers. And guess what? In international hoops, 6'3" to 6'6" are 3's/small forwards. Our "bigs", who aren't really big at all in fact, are relegated to playing positions that aren't designed to stand-up against the "real bigs of the world" (I'm talking about the legit 7 footers). And how come through the years, we've seen bigs who have good handles and range; seemingly tolerated by the mentality/culture of their societies? Here are a few cases in point to mention, Dirk Nowitzi, Lamar Odom, Boris Diaw, Kevin Durant, etc. I leave these arguments for you to reflect on. Moving on to other aspects, is it perhaps the food that we eat? Rice vs burgers...hmmm...makes you think of some creative solutions indeed. Aside from food, how about flooding the market with some pituitary gland tweaking supplements? In any case, before the discussion gets weird and out of hand, local players undoubtedly have the talent as well, but the critical point in all of this is whether our local guys are prepared to stand-up to the "challenges" and level of play brought in by fil-foreign players. The local players can try protecting their "turf" all they want, but at the end of the day, you end up with mediocre competition and inadequate exposure to the challenges of the real "basketball world" (with emphasis on the word world). We can stay encapsulated and shielded from the truths about how the level of play has gone up exponentially in different regions of the globe and settle to making ourselves believe that we still parade the best Asian talents, coaching, training, conditioning, basketball philosophies, among others and find satisfaction in beating the hapless Vietnamese and Sri Lankan basketball teams (nope, I'm not hating or ridiculing them, they are still young basketball nations at this point anyway) into bloody and pulped masses of meat, which probably wouldn't last in the coming years anyway if these guys found some secret formula to winning in this sport. Just my two cents, though, peace out!

All compositions, statements and opinions of the author are copyright © Earl T. Malvar 2009-2010. All rights reserved. There is no honor, respect, admiration, intellectual and academic dignity garnered through plagiarism.

Saturday, July 10, 2010

The Decision: What Was He Thinking?!

We've all heard about the tragic sports history of Cleveland and there was no refuge to be found from what Lebron had to say yesterday. Now, a lot of articles have been written and published across the web trying to dissect the circumstances and the persona of Lebron James that led up to The Decision and I felt that I had to put it down on paper to say what I thought about it. As any event would have it, there are always consequences.

Whether LBJ chose to stay or not, his critiques had their ammunitions ready. If he had stayed he would've been criticized for staying all wrapped-up in his cocoon, a safety zone that he's grown accustomed to, not to mention a perceived ego that he could never share the ball or the spotlight with another superstar (or two). And as he did, he chose to leave and is now getting torched from all angles about his decision. LBJ is now being vilified for not being able to live up to being his own man, a player like Jordan who stuck to the Bulls and delivered the rings for himself. LBJ's infallibility as a hoops deity became tarnished with a decision that implied, "I can't do this on my own, I need real help." If one were to look at the free agent landscape, it was easy to see that Cleveland was indeed going nowhere, even with Lebron on it. Most of the free agents took their picks even as Lebron waited to decide. Furthermore, no other championship coach was available out there other than Pat Riley.

If Lebron was so overconfident about himself, he would've chosen any team and would have just waited for other free agents to fill in the space, but he didn't. He was deliberate, he waited for the landscape to form, for him to scrutinize it. He consulted with other free agents because he wanted to have teammates who weren't past their primes, who were Shaq-like and Gasol-like in their primacy when Kobe won his.

This is exactly what Kobe got with Shaq and Pau Gasol. Kobe was in a position to win when he got drafted into a team with a man named Shaquille O'Neal and eventually a coach in Phil Jackson. Kobe's not in a position to answer this question at this point though because after all the threatening he did that he would leave the Lakers a few years back (after Shaq left), he never had to because Jerry Buss got a Euro superstar in a Spaniard named Pau. Even when he played for the Grizzlies, Pau Gasol was exceptional. He was a Shaq from Europe in his own right (watch his Grizz highlights on Youtube).

I must say, though, that I didn't like the way LBJ had to tell his decision to the world. A one hour special was indeed a humiliating and painful way to tell your hometown that you're leaving. Then again, I wasn't really a fan of the Cavaliers before LBJ came to the scene, anyway. Tell me, were you? I'd like to meet a real authentic Cavs fan, prior to the arrival of LBJ. LBJ would still be LBJ, whether he played his rookie year with the Cavs or not. The ESPN one-hour special was probably something Lebron and his promoters could have done away with, but it's all part of the hype and the drama. Media attention is important if LBJ wants to be a billionaire. Ultimately his brand and legacy would be in jeopardy if he didn't get at least one ring. I see Lebron as a very ambitious man. There are probably two life-goals that continue to control his decisions, winning a ring (a culmination of who he is as a talented basketball individual) and becoming a billionaire (to black America, this is indeed a holy grail in a white man's world). Fame, I think, can also be fueled by controversy. Remember what Kanye did to Taylor Swift? For fame to remain aflame, there has to be something to talk about. Kanye did it because that's how the game of showbiz plays it. If you laid low, you fade away into oblivion from the public eyes. Kanye, of course, being called by Obama a jack-ass, received negative publicity. Lebron, seemingly leaning on to leaving Cleveland, wanted positive publicity for the sake of his legacy, his brand and his public image. He wanted to justify himself properly because he couldn't afford to jeopardize his brand equity, i.e., his billionaire aspirations. In moving to another team, he had better chances to winning a ring. Although knowing that it will be a shared form of glory if they win a title, Lebron took a chance for the sake of winning something significant. How could anyone find credibility in saying that Wade or Bosh or Lebron were better off on their own? Clearly, after Shaq's departure, Wade couldn't carry the load by himself for the Heat, LBJ could only go as far as a one-time appearance in the NBA Finals and getting swept by the Spurs, btw, Bosh has only been close to Youtube. His decision to collaborate in another city instead of risking it ALL in Cleveland, in effect, also meant pulling back on his image as the savior of Cleveland sports. It is something that damages his marketability and the LBJ brand. Without properly justifying himself, he would only look as a traitor, which in any case he seems to be getting depicted as anyway.

Confidence is a huge chunk of how a player keeps pace on the court. I personally experienced this when I played in a competitive basketball league (not on any level near the NBA though ;-p). If you don't have the confidence, then you will just wilt to the pressure and those jab steps, pull-ups, drives, reverse moves, and cross-overs don't feel the same anymore against opposing teams.

How about LBJ? He was clearly better than Kobe in high school and expectations were astoundingly higher for him to achieve more - something that could rival Michael Jordan's. And when LBJ did step-up to the plate after being drafted by Cleveland, he never had a Shaq in his prime nor a coach who handled the greatest player of the sport, but he did have that belief and confidence that he could win a ring. And after seven years of posting ridiculous stats, displaying efficiency and basketball savvy, without winning a ring, he was left to question himself. A tarnished self-confidence that was like an irritating itch that couldn't wait to be scratched. In my opinion, he was doubting himself. To put the situation in a different setting, his was like a college graduate finishing school with honors, but never getting any job offers or achieving anything significant in life, which the school system led him to believe was attainable.

As I have always believed, confidence and humility go hand-in-hand. Here was Lebron who was blessed by the stars to be born with the right physical attributes and understanding of the game, who was led to believe that he couldn't be stopped. Here was LBJ, whose confidence was pushed higher by those who believed he was destined for greatness, only for him to begin doubting himself after so many years of chasing his goal. If you were in his shoes, wouldn't you doubt yourself as well; possessing those attributes, putting in the work, sharing the ball (yes, he is a great teammate he knows how to pass - passing in basketball just shows the attitude of the passer) and posting ridiculous stats, but never getting a ring? Although, I don't personally know him, his game speaks to how he views a team. Remember the much maligned pass by LBJ to Donyell Marshall for a winning shot attempt? He said it himself, he makes his decisions by trusting his teammates. It wasn't about him forcing a ridiculous shot to try to win a game. He was grounded enough to know that he could share the limelight with his teammates. LBJ can be a volume shooter, but he doesn't do it. He expects his teammates to carry the load, too.

I have been a fan of Kevin Garnett, as well. His history is a prime example of what LBJ feared. Garnett was an exceptional player, he was talented, he put in the work, he preached teamwork (oh yeah, he really really did), he took care of his teammates from the starters to the bench guys, he gave it all when he played for Minnesota, but he never got to the Finals. After months of tossing and turning, he pulled the trigger and moved to Boston, but by then, he had already passed his prime. Think about all the what-could-have beens. Lebron is a notch higher than KG, even during their high school days, but they seem to have been on the same track.

Basketball is his work, his livelihood, he could only aspire for more and nothing less. Just think about all those NBA draftees every year who get cut because the management and coaching staff evaluated them and they just couldn't fill in the requirements needed by the team to WIN. This is a business after all, if LBJ wasn't LBJ, he would be cut-out of the team roster anyway, no questions asked. No matter how badly a player wants to play for the main NBA teams (not D-League teams), heart doesn't matter to the owners. It's all about performance and the dollars they can reap through ticket sales and team merchandise. It's a business. We all work for a living right? In sports, people love winners. There is no pity-fandom for losers. Although, there may be exceptional groups of people, like those who root for the Clippers.

Teams serve as inspiration for the common man, perhaps with the values they possess, the service, charity and pride they bring to their communities, but ultimately, it's the goal of winning and clutching the Larry O'Brien Trophy. In a clearly defined game like basketball, where there are schedules and rules of play to be followed, the zenith of an organization/team/player's career is to win the championship trophy; nothing less. I would like to believe that fans translate THE DRIVE that they see in sports to their own personal lives. I, for one, have sought to draw the inspiration from what other people do for a living as well, whether it be team sports, the Jabbawockeez, etc. The passion sometimes just doesn't mean to do something for the love of it. A person should always seek to excel in it, and at the end of the day there shouldn't be bitterness or an illusion that one can be better than his fellow man. All that counts is that a person knows he gave his all, whether the results were fruitful or not, there can be no what-ifs. As a high school teacher of mine once said, "Always aim for the stars, so that in case you fall short, you'll at least hit the moon." In life, which is a chopsuey of experiences and circumstances, it's all wide open. If one were to ask you what your dreams and aspirations are, yours would be different from any other's, but just the same you would do everything in your power to seize them.

Lebron James has always felt the same way himself. He wants a ring so bad and he has made his intentions clear by implying that he is willing to share the credit with other people, (i.e., Wade, Bosh, Riley, Spoelstra, et. al.). He just wants a taste of the feeling as any person would in their own personal lives and careers - a promotion, a home run in little league baseball, a win over some douche at the video arcade, a much praised speech, a good review for a movie, recognition for an excellent dissertation, a raved about chef's main entrée by a critic, you get the drift. Anything less would be unacceptable, if not regretful to anyone who is blessed with the right attributes, tools, skills, opportunities, luck and has put everything into the process to achieve a goal. Winning a ring is the apogee of Lebron's career.

All compositions, statements and opinions of the author are copyright © Earl T. Malvar 2009-2010. All rights reserved. There is no honor, respect, admiration, intellectual and academic dignity garnered through plagiarism.

Tuesday, June 29, 2010

Insurance and Modern Portfolio Theory

Through the years, the insurance and financial investments industries have taken a lot of criticisms from those who did not want anything to do with them. To the uninitiated and uneducated, insurance is an industry of racketeers looking to sell pieces of paper, while financial investing is a fabricated field of expertise created by self-important gamblers. While this might seem to ring somewhat true, it is also important to remember that these two industries deal with assets and liabilities vis-à-vis the ever illusive predictability of the future. And who is best equipped to hold a “tinge” of capability and credibility in analyzing the probabilities of tomorrow than these two industries? Statistics and advanced mathematical tools have helped insurers and investment professionals gain a glimpse of what could happen tomorrow. It is indeed impossible to be completely knowledgeable of events and circumstances that have not yet manifested, but perhaps no one else comes closer to the skill, knowledge, and facilities that these two industries possess in doing what they do.

The business of insurance and the conduct of financial investments are intertwined. They find common ground in what most financial pundits refer to as the concepts of Risk and Return. While insurers focus on risks, they are also concerned with pricing the risks they take on in order to reap some profit. This is precisely what capitalists find worthwhile in establishing insurance companies. Why else would they shoulder somebody else’s risks? Investment professionals, on the other hand, pay attention to returns and this is how they convince investors. Although pricing assets and relevant cashflows are integral components of the investment profession, risks represent the probability that these professional investors would be unable to deliver on their promise to hit or surpass a specified percentage, rate or benchmark of return/income. In these two professions, Risk and Return are core foundations in exercising a livelihood.

Although many people might acknowledge Warren Buffett as the ultimate investment professional, a lot of people might not know how the insurance industry served as a key platform to his success. Here are three weblinks that reveal something about Buffett and his affair with the business of insurance:

At the bottom of the third weblink, are impassioned comments between the blogger and a reader regarding the interpretations of Warren Buffett’s 2009 annual letter and his views on the business of insurance.

An important point to remember is how Warren Buffett values the concept of float. While banking and financing institutions give much weight on the time value of money (i.e., interest rates), the concept of float for the insurance industry is a bit different. In the field of traditional banking (i.e., borrowing and lending), interest rates reign supreme and are tied interdependently together (across global markets and economies, in fact). The movement of rates affects the values of other financial assets that are being handled by financial professionals, as well. Insurance business, on the other hand, although somewhat affected by interest rates, primarily leans on the assumptions of event risk and statistics. Float in insurance does not necessarily imply that a timeframe is strictly specified and the cost of money is tied to the domino-effect-ridden financial markets. Mr. Buffett finds value in writing profitable insurance policies that are guaranteed to make unrestricted profits after the term of contingent liabilities has lapsed. There is no debt to be repaid, only an underwritten premium to be kept/deployed as long as it is properly, yet competitively, priced and which has an imbued profit margin.

Modern portfolio theory emphasizes maximizing returns while minimizing risks, while giving recognition to the existence of systematic and non-systematic risks. These concepts are usually referred to when discussing financial investments. Insurance being influenced by Risks and Returns as well, also finds meaning through modern portfolio theory. Concentration risk is probably an appropriate phrase to use when alluding to the expression, “Do not put your eggs in one basket.” Although, for the sake of mentioning, Warren Buffett is famously quoted to have said, “Diversification is protection against ignorance. It makes very little sense for those who know what they are doing.” Of course, astute investors usually do not want to get ahead of themselves. The assumption is Mr. Buffett leans on the merits of his achievements and therefore has the savvy to go against established academic thoughts regarding diversification.

Diversification is the solution against being a victim of concentration risk. Over-reliance on an asset/similar assets’ profitability and hopes that a contingent liability/similar contingent liabilities do not become actual obligations are risks that can wipe-out risk-portfolios in an instant. As with financial assets, there are systematic risks that cannot be insured and are simply givens of the environment. A good example would probably be the risk of an asteroid hitting the Earth. That is not something that can be hedged against because an occurrence of that magnitude is tantamount to a near or absolute extinction event. Non-systematic risks and alphas are the main items that give underwriting skills meaning. Non-systematic risks can be eliminated by widening the coverage of insurance over more Assureds. In doing so, diversification is achieved. Alphas, on the other hand, represent the surprise return or inherent profitability of an asset and in converting this concept onto the insurance industry, this is perhaps the inherent traits/characteristics of an insured property/person/event and how the hazards and other circumstances are minimized, wherein it is more probable that the premiums paid by the Assured will eventually be kept at the end of the insurance policy coverage period. While financial assets are capable of delivering abnormal returns, insurable risks are also able to remain abnormally intact and avoid transforming into real obligations for the insurance company.

All compositions, statements and opinions of the author are copyright © Earl T. Malvar 2009-2010. All rights reserved. There is no honor, respect, admiration, intellectual and academic dignity garnered through plagiarism.

Sunday, June 20, 2010

Unpegging the Yuan to the US Dollar and Then Some

The Chinese economy, in recent years, has found favor among the pockets of consumers around the world. China has been supplying the world with cheaply priced goods and in the supply-chain diagram, no one else is agreeing more than Western corporations who have found better opportunities of value creation and margin widening offered by China's super factory (i.e., it's cheap labor force + economic and socio-political stability). For profit-oriented organizations, it can be a pretty convincing decision to invest in China, especially when customer demand for their goods and services aren't regressing, while quality and capacity on the other hand are manageable and are not sacrificed (although quality control remains a huge criticism against the Chinese).

I find it disappointing though that some Americans continue to blame their government (the Obama administration) and antagonize China (the U.S.'s biggest creditor for U.S. Treasuries by the way) for their economy's decimated state. Fine, China has been pegging its currency at a fixed exchange rate to encourage U.S. buyers to buy more goods made in China, but that is only a small component of what's happening in their economy. The laws of Supply and Demand continue to ring true.

It's probably a lot messier if we try to dissect the situation and the underlying circumstances between these two superpowers. Just to thicken the plot, if the U.S. were to disapprove of China's currency practices of pegging and suddenly cut-off trade relations (where, right now China is obviously the benefactor as net exporter), would the tension between political philosophies (democracy vs communism) remain even after the end of the Cold War and the fall of the USSR? Instead of an isolated and secretive state (think North Korea), we are now seeing China enjoy the benefits of a capitalist economy, even though it remains a communist state. And of course the West is egging it on to continue its socio-political transformation. Who would want the progress that has already been achieved to regress to a polarized global political arena again? This question is significant especially when the war on terrorism has allowed the battle of "Order and Chaos" to become a battle between current civilization and stateless theological extremism (a movement that does not necessarily belong to any race, nation, state or political movements btw, only something controversially affiliated to a version of religious fervor).

Indeed, Americans really have to make-up their minds. If they believe in a stronger American economy, than they should buy American. The problem is they find more bang for the buck when they buy what the Chinese make. Allowing the Yuan to strengthen is extremely beneficial to smaller exporting nations, like the Philippines and other South East Asian nations (that's right, it's not only the U.S. that has issues with this Yuan pegging M.O.). ASEAN economies are being raped by cheap Chinese goods and services, and guess what, the stamp of approval is coming from the West and the U.S., itself, because again, cheap is cheap. ASEAN societies being "pseudo-democracies" have always had problems with inflation and labor forces. We want our cut of the pie (and some cake) as well. While China remains communist in nature, Chinese citizens have no qualms about their standards of living. It seems like they take it as it is (knowing the government is behind their back), although I may be wrong on this because I am no sociology expert on Chinese society. I must also add that it seems like the Chinese have learned how the capitalist system works,

and that egalitarianism has started to fade as citizens ask for better pay packages and benefits even though we all know that outside a certain company (say, Honda) other employees earn less.

Interestingly enough, it has occurred to me (as I was watching a History Channel segment, "Iran: The Hundred Year War")"

that because of the Cold War and the fear of a Marxist contagion taking over the globe, the bastion of Democracy that is the United States, sought to take preventive measures and/or place neutralizing factions by putting local leaders into power and providing support. These people were supposed to be committed to upholding democracy as what the forefathers of the United States had intended when they emancipated themselves from British rule. Unfortunately, the noble premises and intentions did not translate no matter how educated these people supposedly were and most of them turned out to become despots and dictators.

The very people that were put into place by the democratic superpowers as champions of democracy against communism became the templates of dictatorship that citizens of third world nations learned to despise. Ironically, this was what the U.S. wanted to prevent, Stalin-like leaders who hoarded power. Then again, such is the unavoidable problem in creating an authentic democracy. Oppositions will exist and they will manifest through what Constitutions provide for as freedom of speech, expression, demonstration and whatnot. I believe that up until today, among third world nations (like in ASEAN), leaders (prime ministers, presidents, dictators or what have you) and their "entourage" have often been tempted to take a cut of the pie and enrich themselves while in power, while the opposition keeps a look out and would cry foul whenever something is amiss or is being plundered. This cycle has gone on ever since. The U.S. remains committed to poise itself as the best and viable template of democracy, however, where people have the right to say what they think, as long as these are legal and do not step on other people's rights. Unfortunately, this very system is where "in-house" terrorists and extremists thrive, because they can make it look as if they are simply expressing their opinions and beliefs when in fact they are plotting for the destruction of the existing systems/structures of order and governance.

When the smoke had cleared after the Cold War, China, meanwhile, remained intact and stable. The communist state that was once a concern for democracies everywhere had found potential in free markets. Deng Xiaoping was one of the advocates of China's transition (") and apparently the transformation had started not from the ground up, but from the top down, from the leadership down to general society.

While China had initiated changes from the top, other dictatorship-ruled third world nations found a re-calibrated version of democracy only after revolting against their once pro-democracy leaders (who were also once supported by the West). This meant that the change was from the bottom-up. With the top spot left open for everyone to take a shot at (a position at the top is indeed tempting) and the democratic mode of empowerment (elections) serving as the mechanism, citizens of third world democracies have found themselves where they are today. Ironically, feeling lost and clueless as to the ultimate direction of their politics, society and economy.

And so, after getting sidetracked, we move back to the main subject of our discussion. The United States must figure out ways to sell their first-world goods/services at cheaper prices that citizens of poorer countries can afford. It can't expect itself to become a net exporter overnight. The third world has long been preconditioned to think that it works and supplies goods/services for the U.S. economy when in fact it can work both ways. Roles should and might eventually get reversed in time, wherein the Chinese (being wealthy with their appreciated currency) become net importers/consumers, while Americans learn to buy their own goods and become net exporters/suppliers to some other country. This observation, of course, simply comes from a by-stander from a small South East Asian country, which will probably remain (together with its ASEAN counterparts) as suppliers for both China, the U.S. and the rest of the world. It may probably even be for the best.

All compositions, statements and opinions of the author are copyright © Earl T. Malvar 2009-2010. All rights reserved. There is no honor, respect, admiration, intellectual and academic dignity garnered through plagiarism.

On Plagiarism

Being an avid reader of online articles around the net, I find it disappointing for some people to assert that some ideas they have were originally conceived by them, when in fact it belonged to someone else.

Of course the timing of 'discovery' plays a crucial part. It's a question of who concluded or thought of the idea first. Moreover, I can't argue that complex ideas are indeed built upon the basic premises and conclusions made by other people who have come before us. I'm really curious if anybody knows the identity of the dude who concluded that 1+1=2 or if we are aware of the identity of the original "concluders" of other blatantly obvious and observable facts that we now consider as irrefutable truths or givens that people use when they start formulating new equations. Synthesis and creation, after all, is a unique human ability and talent.

So what really is my point? Why am I writing this? I'm probably so self-absorbed with the "brilliance" of my self-generated thoughts, right? How egotistical can I be? Actually, I would like to believe or I'm hoping to believe that I've not been blinded by any narcissistic tendencies that us human beings so often find ourselves falling into.

There is a certain order to things and I believe that there are only two constant forces at work in the known Universe and these are Order and Chaos. Unfortunately for the minions of Chaos (sorry chaos-lovers!), I'm rooting for the Order side. Now, I don't want to wallow in a very controversial concept such as Order. Order is order (in reference to organization). Among people, it will vary. Your version of order is different from my version of order. Islamic extremists' version of order will be different from a Pacific island monarch's version of order. A kindergarten student's version of order will be different from a college student's version of order. I hope you're catching my drift, because I'll run out of space with examples if I go on.

So am I starting a cult as I throw my thoughts out there? I'd like to believe that I'm not because the contents of these blogs are opinions after all. Now, it's come to my attention that poor ole "opinion" has become a scapegoat of sorts to a lot of people when they assert their beliefs, but that IS actually the truth in the exercise. We all have something to say, whether we agree with each other or not.

I sort of chuckle whenever I recall a line that was said a few times in the TV series Lost, "If you allow him to speak, it is already too late."/"If he speaks, it will already be too late." Choices can be a burden, especially when the options are embedded with ideas/knowledge/facts/opinions. A person can choose to react (favorably or unfavorably) to an idea or simply ignore it (as a non-factor to a decision), but in any case, the decision-maker would have been conscious of the idea's existence. He may allow it to affect him or not, but it's undeniable that it was thrown out there (just because). Whether someone agrees with the thoughts posted here or not is up to that reader. I publish my thoughts to share to the world, for their consideration and their independent choice to acknowledge it (whether they see it as truth or mere hogwash). I would like to think that, on my end, I've fulfilled my responsibility by throwing the ideas out there for anyone lucky/unlucky enough to have to digest them.

And so, after much meandering (guess what, you could've skipped the first 6 paragraphs), I give you my copyright declaration below:

All compositions, statements and opinions of the author are copyright © Earl T. Malvar 2009-2010. All rights reserved. There is no honor, respect, admiration, intellectual and academic dignity garnered through plagiarism.

Sunday, May 16, 2010

Conclusions on ERM

I guess it's only fitting that I explored ERM as a term paper, with it being such a hot topic these days. This doesn't solve global warming or anything urgent concerning most people on the streets, but I hope it gives a refreshing perspective on how to tackle an issue, especially one as complex and as alienating as risk management.

Enterprise Risk Management has become a focal point of discussion in board rooms and regulatory institutions in recent years, thanks to the progressive integration of economies and financial markets across the globe. With this global expansion of commerce and trade, comes a new set of business dynamics that not all organizations are acquainted with or accustomed to. Indeed, amid the emerging opportunities brought about by transnational economic integration and development, comes a kind of fragility in this new economic paradigm. Globalization has its blessings and curses, as depicted by the Financial Crisis of 2008.

The traditional talk on profits, margins, returns and costs are now passé, as the subjects of risk, risk management, and Enterprise Risk Management have begun to draw attention from those with the authority to mobilize resources and influence decision making in organizations. The proponent sees the roles of risk professionals growing ever more relevant and critical in ensuring the realization of organizational goals and objectives.

After having explored the frontiers of Enterprise Risk Management, it is apparent that much has evolved through the years and yet there are still many loose ends to tighten. Gone are the days when only profit maximization and cost minimization mattered. Risk now plays a major part in the process of decision making and strategies formulation. Organizations may find it difficult or confusing to have to contend with so many systems and frameworks being sponsored and advocated by different groups, institutions, and association; bolstered by their respective credentials. Standardization has always been a key objective for proponents of Enterprise Risk Management, even though the very nature of risk asserts a rather intangible and variable concept regardless of which industry an organization may belong to. In any case, the basics of published ERM frameworks out there are similar; these are, define the risks, quantify them, determine the responses, implement, operationalize, establish monitoring and create feedback mechanisms. There are many variants by which advocates can present an ERM framework, but what is most important is perhaps an organization’s willingness and initiative to become aware and not be victimized by ignorance from the relevant risks.

Risk management though does not come for free. Resources have to be committed and spent. This is probably one of the reasons why some organizations take ERM or some form of risk management as a burden rather than an ally in ensuring that goals and objectives are achieved. The intangibility of the return or the benefit can indeed give an impression of pointlessness. This dilemma happens to be one problem that insurance companies have to contend with. Marketing insurance products and convincing the public to hedge themselves against the undesirables of tomorrow is part of the challenge in selling insurance. The assurance or sense of comfort can sometimes be taken for granted especially when the main point is to hedge against the uncertain. Who in their right mind would wish for an undesirable event to manifest? As long as the risk or peril does not manifest, the risk management mechanisms are not fully appreciated, especially when time, attention, and resources could have seemingly been diverted to more immediately profitable undertakings. In any case, however, the benefits to an organization, operating under an ERM regime, are real. Risk management is not a futile exercise. It is a revolutionary function that recognizes an organization’s relationship with its internal and external business environments. Enterprise Risk Management ups the ante by advocating an extensive and all-encompassing risk management initiative that leaves no stones unturned.

Enterprise Risk Management, if to prove successful for an organization’s sake, must encompass and permeate through a company’s culture. Risk management, especially in the insurance industry, can be tricky because risk factors can sometimes be unquantifiable. The very nature of risk as an unanticipated loss or liability further highlights the need for a firm’s workforce to understand and practice ERM. Risk management, though a relatively new function in organizations, has now been given greater attention by higher management after the financial debacle of 2008. It may still have a long way to go though before uniformity and formalities are established as different industries and companies possess unique attributes and business needs that make effective Enterprise Risk Management elusive to practitioners.

Insurance companies have long been mindful of the relationship between risk and profit-making. After all, as most experienced insurance professionals would commonly quip, “Insurance business is no charitable undertaking.” Many techniques and arrangements had been devised by insurance companies through the decades in order to ensure the attainment of organizational objectives. Reinsurance activities are key symbols of how a company can meet risks head-on with the proper tools of manipulation. Instead of running away from risks, insurance companies are capable of reaping benefits from them. The operations aspect of an insurance company’s risk management framework are relatively refined and developed when compared to other industries. This probably stems from the insurance industry’s core competence in handling risks.

There are still many issues to be dealt with in developing and implementing Enterprise Risk Management. The insurance industry stands as an excellent example of how commitment to understanding risk can yield many business-relevant tools, systems, policies, and procedures. Other sectors and their member firms need only to take the initial steps of commitment formulated by pundits in order to develop a risk management program. Once consciously prepared to do so, an organization can then embark on the epiphanic journey towards an authentic Enterprise Risk Management framework.

Saturday, April 17, 2010

Term Paper Abstract

Hmmm... new and improved or worse?

What is risk? While risk is known to be an all-encompassing facet of life, the intangibility of the term leaves much to be desired from a casually academic or even practical exploration of its nature. Risk, at least in the proponent’s opinion, is only as significant as the degree to which a party becomes aware of its existence and concerns itself with the possibilities of any threat or undesirable event manifesting; along with the resulting conditions, circumstances and consequences. The essence of risk is perhaps inherently coupled with human nature. Being self-aware and self-conscious beings, we seek purpose. As sentient creatures, a unique purpose is conceived by each person from his psyche. It may not necessarily be of divine or messianic stature, but is still likely above basic animal instincts; from plain survival, physical sustenance, to species propagation and whatnot . It is perhaps because humans have the intellectual capacity that they are able to translate risks and perils beyond the fight-or-flight mechanism of choice. People are able to attribute events and circumstances with gradients of severity that may affect their conceptualized purposes, intentions and endeavors, whether it be as simple as crossing the street or as complex as doing swing trading in financial derivatives.

Moving forward with the discussion, the proponent once again poses the question, what is risk? After having briefly discussed a subject of such abstract quality, has it already become tangible? Does it gain meaning or manifest itself if put in a certain context? In elaborating the concept, the proponent wishes to present a hypothetical Earth where only vegetation exists. If a forest fire broke-out, is there risk? From whom or what sentience does the concern emanate from? Will the vegetation that thrives on this imaginary Earth be able to do something about the fire or will the extinguishment of the blaze be left to the whims of nature and the various converging circumstances and forces at play? Whether the reader sees these as simple rhetorical questions or just irrelevant musings, it can be said that risk is given significance in the context of human conduct and commerce. While the Universe has existed and will continue to exist following all the scientific laws of chemistry and physics, the existence of risk is dependent on how human society gives meaning to it. On a practical level, certain risks will continue to threaten activities and objects of interest to humanity, but there are risks that will be eliminated, mitigated, cushioned or transferred via the tools and solutions that man reacts with. When people think, create, invent, innovate, restructure and optimize aspects of their lives through the use of instruments, systems, institutions, collaborations, syndications and arrangements, that is when it becomes undeniable that a concept man has termed to be known as risk exists. Whether deemed futile or worthwhile, man continues to create protection against risks, for his sake and the welfare of his related interests. One example is the appearance of the AH1N1 virus, initially the public knew little of the hazards it posed, but when the threat of a pandemic loomed, global leaders rushed to organize ways to prevent the disease from spreading worldwide. Pharmaceutical companies developed vaccines against it and although a cure has been found, the risk of viral mutation lingers. Moreover, not all countries or social classes of people are able to afford the medicine. Regardless of tools and solutions, there is still plenty of risk to go around. Although risks can be eliminated, in whole or in part, there are new risks to contend with at every turn. This will remain true as long as man continues to create new tools, conditions and circumstances that he must deal with in his environment.
And so in this contextual concept of risk, the proponent wishes to explore the practice or rather the organizational function known as ERM or Enterprise Risk Management. Implicit from the name of ERM is its application, because it is most relevant in an organizational setting. Organizations represent an amalgam of people working under institutionalized processes and systems. Although the individual purposes, intentions and ambitions of people vary across the spectrum, they are subjected under the unifying objectives of the companies they work for. Organizations, whether for profit or not, have mission and vision statements that guide them in their commercial or charitable endeavors. For all the opportunities that a company can take advantage of, there are also threats and obstacles that must eventually be met and dealt with at every turn. In order for an institution to thrive, it must respond to whatever the environment throws at it, whether the challenge emanates from nature, man or a combination of both.

There is plenty of literature on the topic of risk management, but as far as standardization goes, there is no uniformity on how organizations approach Enterprise Risk Management. Risk Management, after all, is neither an exact science nor a simple practice of arithmetic where 1 + 1 = 2. The rules are fairly flexible in consideration of the myriad factors that different organizations and industries have to take into account. There are frameworks that present a procedural perspective by which a company can establish a basic and operable risk management function, while others discuss rather subjective and philosophical approaches in developing ERM. Unlike the rigorous schools of finance, economics, accounting, and what have you, where there are predefined treatments and rules to concepts, it seems that ERM frameworks are still under the developmental phase towards a more scientific form that academicians and student-practitioners will be accustomed to.

In exploring Enterprise Risk Management, the proponent wishes to further expand this academic paper by exploring its applications in the Insurance Industry. This is of particular interest because insurance companies primarily concern themselves with the business of risk. In view of the voluminous data and studies that all financial institutions and investment houses have and regularly churn-out, it can be said that securities markets, most financial products, assets, liabilities, and whatnot are correlated. As exhibited by the financial debacle of 2008, the development of technology and the integration of financial and economic markets across the globe meant that there was and probably will still be a “domino-effect” risk in the system. Event risk, on the other hand, which is generally the forte of the insurance industry, is an all-encompassing and inherent component of society. Event risk emanates from all conceivable angles. It is present in all industries, in all going concerns, in all human activities of interest.

Wednesday, April 14, 2010

Thoughts on New Directions in Management by John Drzik

It is apparent, and ironic, that risk management and even regulatory enforcement have evolved and developed the most when the necessity arose. This may be an unfortunate and unavoidable part of risk management, wherein the best simulations are actually the real situations that managers can assess and create the appropriate defenses to. The Savings & Loans collapse at the end of the 80’s highlighted the urgency of insulating against systemic risks. Twenty years after, it only revealed how risk management practices became outdated against the accelerated evolution of financial markets. Credit rating agencies got the flak for their leniency and lapses, while those who had lost so much were demanding for someone to burn at the stake. The U.S. financial system’s meltdown, of course, was not set-up in one day. It had snowballed from smaller and seemingly simpler components from previous years. To the credit of those who initiated the directives in improving risk management after the recession of the early 90’s, financial institutions received the much needed insulation and cushioning to help them weather future economic downturns. This also highlighted the critical role that the financial sector and leveraging activities played in the development of the U.S. economy; a reality that will underscore the government bailouts of 2008. Risk management, as an organizational function, has benefited from it becoming an amalgam of industry/company role-players. A risk manager, in fact, could be anyone who understands the underlying processes and accompanying risks involved in a going concern. Challenges are still abound though, like any young and upstart movement.

Saturday, April 3, 2010

What is Risk? My Term Paper Abstract

I just typed a term paper abstract for an hour and my head is hurting. I hope this makes sense!

What is risk? While risk is known to be an all-encompassing facet of life, the intangibility of the term leaves much to be desired from a casual academic or even practical exploration of its nature. Risk, at least in this proponent’s opinion, is only as significant as the degree to which a party, who becomes aware of its existence, concerns itself with the possibilities of any undesirable event occurring; along with its resulting conditions, circumstances and consequences. At the very essence of risk is perhaps a philosophy of humanity’s nature, as self-aware and self-conscious beings; that as biological creatures, a unique purpose is conceived by each person from his psyche. The purpose may not necessarily be of divine or messianic stature, but still most probably above basic animal instincts of plain survival, physical sustenance, species propagation and whatnot . It is perhaps because humans have the intellectual capacity that they are able to translate risks and perils beyond the fight-or-flight mechanism of choice. People are able to attribute events and circumstances with gradients of severity that may affect their conceptualized purposes, intentions or endeavors, whether it be as simple as crossing the street or as complex as doing swing trading in financial derivatives.

Moving forward with the discussion, the proponent once again poses the question, what is risk? After having briefly discussed a subject of such abstract quality, has it already become tangible? Does it gain meaning or manifest itself if put in a certain context? In elaborating the concept, the proponent wishes to present a hypothetical Earth where only vegetation exists. If a forest fire broke-out, is there risk? From whom or what does the concern emanate from? Will the vegetation that thrives on this imaginary Earth be able to do something about the fire or will the extinguishment of the blaze be left to the whims of nature and the various converging circumstances and forces at play? Whether the reader sees these as simple rhetorical questions or irrelevant musings, it can be said that risk is given significance in the context of human conduct and commerce. While the Universe has existed and will continue to exist following all the scientific laws of chemistry and physics, the existence of risk is dependent on how human society gives meaning to it. On a practical level, certain risks will continue to threaten activities and objects of interest to humanity, but there are risks that will be eliminated, mitigated, cushioned or transferred via the tools and solutions that man reacts with. When people think, create, invent, innovate, restructure and optimize aspects of their lives through the use of instruments, systems, institutions, collaborations, syndications and arrangements, that is when it is clear that the risks exist and were eventually hedged against through the efforts of man. Although risks can be wholly or partially eliminated, there are new risks to contend with at every turn. This is true as long as man continues to create new tools, conditions and circumstances for him to deal with in his environment.

Friday, March 5, 2010

How to Reply to A Statement like, "The concept of a central deity that rules all that exists is outdated, unscientific, and completely backwards. Religion is a crutch for weak minded people who can't think for themselves."

I was browsing just a while ago on Yahoo and I stumbled upon the Article: It's official: An asteroid wiped out the dinosaurs (by Reuters)

As what web surfers usually do, I found a bunch of replies/posts by people from all over reacting to what the article had to say and what it meant for them. As I read one particular post, something ignited in me to reply. All I can say is, there are definitely some people who make bold statements (or opinions) about their beliefs regarding the concept of Divinity and the existence of God, and think that their thoughts are far better than those of the other "inferior people" out there. So below is what I had to say about it all.

Just because man has obtained a degree or level of intellect does not put him in a position to deny or affirm the existence of a deity. In order to see different perspectives that different people have been "inspired" to come up with, a person (who is a part of the homo sapien species) must learn to be humble of his stature vis-a-vis the vastness and the infinite breadth of the continuum (time and space). A person's existence is insignificant, fleeting and temporary to what the Universe IS. One must get over his ego (as if he is better than all the other people and their thoughts and opinions) and stop from being too self-absorbed of what he thinks is "the most correct theory or answer." In my opinion this very mind-set or orientation of some people - to think that they are better than others - is the root of division, wars, RACISM, narcissism, malice, hatred, among other distasteful behaviors of people against their fellow man. IN MY OPINION, man, as a creature, evolved with 5 senses (that's what's taught in kindergarten) and these are the bases of our EMPIRICAL database of knowledge. People experience through these 5 senses. Some say that they have a 6th sense, but of course some would dismiss this claim as ridiculous. Let us also take note that there are some creatures, under the invertebrates grouping of the animal kingdom and at the lower chordata phylum (hemichordata, cephalochordata, urochordata) that do not possess the developed senses that higher craniates exhibit or manifest. Some just have underdeveloped ocelli (light receptors), among other underdeveloped sense organs, which basically means that they thrive and exist based on THE REALITY they are experiencing with their limited senses and intellect (relatively to what man asserts as the truth or reality he has comprehended/explored for himself). This, too, is what is experienced by varying creatures of the Earth. Man might not be an exception, although we stand out, because, we are self-reflecting, self-conscious and are capable of a higher level of intellect. In my belief, however, some people are so convinced that man is the ultimate creature or level of sentient manifestation that if any animal could advance to a higher degree of existence, man would be the ultimate entity representing sentience in a rather randomly converging order in and of the Universe. If I can recall my college philosophy, I think it was Ludwig von Feuerbach (or Hegel) who stated that God is given image or identity by man based on the "ultimate or best qualities that man can be or is", because that's the best way to be able to concretely manifest a deity in our understanding/experience/thoughts (at least at the level of understanding of man and the level of intellect that he can comprehend or give meaning or significance to) just like if a bird had a higher degree of intellect, a bird would imagine its god to be the "ultimate bird", a great creature with superior wings among all the birds, among other physical, subjective or abstract qualities (that man, too, usually finds himself unavoidably giving meaning and attributing to a superior form of being, that he conceptualizes in his mind). By no means do I wish to delve deeper on the intricacies of religion and philosophy, there are a great many philosophers who have presented far more extensive and plausible arguments, premises and conclusions to what I have or have come to understand in this life. All I wish to point out is that we should be humble and be humbled by the stature that we have found ourselves in, in front of the infinite Universe. None of us would definitely hold the key or the answer to something so advanced in concept and eventually be found wanting in intellect. Just to throw in a monkey wrench on the gears, isn't it that there is a theory (I am not a physicist) that there exists multiple realities and dimensions? Of course until proven concretely and empirically (through experimental evidence verified by our 5 senses, sight, sound, taste, smell and feeling), that these theories remain so and not laws of physics. Just my two cents though.

I wish to give credit, whether through inspiration or via concept, to one of my graduate school professors, Mr. Jun Benedicto. He is a believer and an aficionado of the concepts and theories related to the metaphysical. He is by no means a day dreamer, and is in fact a very pragmatic and astute guy in the conducts of business, economics, finance and the realities of the economy and society. *thumbs up*

Tuesday, February 23, 2010

Of Order and Chaos

The concept, institutionalization and adherence to ‘order’ in response to a confluence of factors, events and activities might be an apt definition of how human society functions. It may perhaps be an offshoot of the complex nature of man in quenching his innate curiosity regarding his existence vis-à-vis the world around him and his pursuit to discover his ultimate purpose. These ideals, of course, might be over the top when already at the most practical and obviously indispensable level, he is concerned with the basic needs that all living creatures on Earth require to survive (and then some). Humanity, of course, is much more capable with his tools and intellectual capacity, but one must tread carefully lest he be led to believe that the concepts of anthropocentrism and naturalism are the absolute truths. I, for one, do not intend to opine on the ethereal topic of the metaphysical and if indeed there is a Divine hand in control, it would simply be too contentious to prove a point and will inevitably lead to a long and meandering attempt to define a topic so unavoidably philosophical, but in any case, when one pays attention to nature, it cannot be denied that there is a sense of order to things. Between order and chaos, there lies the commerce, conducts and sensibilities of man. As with all living creatures, people, are also just trying to get by. But, unlike the species that do not manifest self-consciousness, self-contemplation, retrospection and a higher level of intellect, homo-sapiens are somehow goal oriented. This is probably an extension of man’s innate nature to search for his purpose. Society’s systems, processes, practices, laws and institutions are the instruments by and through which he thrives on.

Regulatory frameworks and policies are extensions of man’s intentions to create order as well. In the industries of banking and insurance, risks are all around and the threat of the ‘unknowns’ disrupting the order that bankers and insurers have intended to preserve are ever present. More so are risks given special attention by insurers because unlike bankers who have threats and opportunities to hedge against and explore, respectively, insurance companies contend with business opportunities that are embedded with the threats that people want to relieve themselves of.

Frameworks and policies can be strange instruments in the commerce of man, they can be blamed for a lot of failures and misfortunes, but people also tend to cling to them because that is how systems work. They relieve the fear of the uncertain and serve as the wall to lean on; the only thing outside of them is chaos, which may probably be too overwhelming for any one person to face. As societies have advanced, the complexities of systems have progressed, undertakings (including business endeavors) have expanded beyond single localities and entered a more global stage and the objectives/purposes of people and institutions have gone beyond any one person’s aspirations/ambitions in life, the more critical these institutionalized tools of ‘order’ are to the preservation of civilization’s progress and development.

There are, however, those who argue that systems (or the system) only look to install absolute order and control on society’s populace. As society has become an amalgam of policies, frameworks, laws and systems, the more suspicious some people have become. Is free will being chastised or is there true purpose to instilling ‘order’ to a society ever vulnerable to the whims of chaos? I, at this point in time at least, believe that there is a ubiquitous struggle for balance, which defines a civilization’s existence. The extremes of the spectrum may not be conducive in allowing human society to last (i.e., absolute order on one end and absolute disorder on the other). Change is absolute and adapting to the uncertainties of society’s tomorrow is man’s challenge in responding to his unique situation as a creature capable of intellect and the utilization of tools and technology, among others. It is man's unique circumstances that it can be said that he has special motivations and means by which to respond to the adage 'survival of the fittest'. I believe that a morally motivated mechanism of the will of a people (or a species) is beneficial to its advancement. Frameworks, policies, and law and order are only as useful as the extent to which it allows the people under their dominion to grow as human beings. Then again the last two statements are definitely points of contention that many may find interesting and intriguing to expound on.

Thursday, February 11, 2010

Passion for Justice by Pompeyo Diaz (former Philippine Justice)

I wish to share a truly inspirational and thought provoking speech given by Justice Pompeyo Diaz to a graduating batch of lawyers, which my former legal studies and insurance claims professor, Atty. Rodolfo Lat, was part of.


We are not here to celebrate the successful ending of your course in the law. We are here to send you on your way because from here, you will commence your profession in the law. We hold these commencement exercises, therefore, to say good-bye to you and to wish you well on your journey.
The closer a man approaches the sunset of his years, the more often his mind returns to the remembrance of things past. For to every man, if he lives long enough, there comes a point in life when he realizes, not without sadness, that there may no longer be time to climb new mountains. And that is when dreams begin to yield memories as if reliving the past can somehow fill the void left by the flight of dreams.
It is more than fifty years since I sat where you sit now, an acolyte at the altar of the law. But the lengthening shadows of life only make the recollection of it as fresh and clear as if it were only yesterday.
I was given the privilege of addressing you one last time. I will do so, no longer as your teacher, but as a friend. But let me take a vantage point from which I can speak with some candor. As your own sun is rising in the east, mine has long since passed the point of high noon, and in the gathering dusk, I see you within the perspective of time. There are landmarks which I have beheld but which are still hidden from you[r] view.
Some forty years ago, I took my oath of office as a Judge of the Court of First Instance for the Province of Rizal in the chambers of a Justice of the Supreme Court. This was for my first appointment to the bench. You know I had several. It was an occasion for deep pride in my family especially when the appointee was hardly thirty-five years of age and the Justice administering the oath to him happened to [b]e his own father.
After the oath-taking, my father took me in his own car and drove me to the courthouse in Pasig. He led me into the building, up the stairs to the second, and walked with me to the door of the sala which would now be mine. He stood by the door and let me enter alone. I did, and I went straight to my desk. There I saw a piece of paper upon which were written in Latin, in my father's own handwriting, those awesome words which must have shaken the walls of the Senate of ancient Rome: Let Justice be done, though the heavens fall!
In a lifetime devoted to the study of the law, these words still do not fail to stir in me emotions which should have long since been spent, memories which should have long since been put to sleep, questions which should have long since been laid aside. What is the law? What is the truth? What is justice?
What is justice? It is to render to each man what is his due. What is the truth? It is that which you seek, and keep on seeking, so that you may render to each man what is his due. What is the law? It is the instrument by which you discover that which you have been seeking so that you may render to each man what is his due.
The answers seem such simple directive for everyone to follow. The reality, however, is different. For, the law may be twisted to hide the truth in the same way that the truth may be distorted to ridicule justice. There are men in any society who are so self-serving that they try to make the law serve their selfish ends. In this group of men, the most dangerous is the man of the law who has no conscience. He has, in the arsenal of his knowledge, the very tools with which he can poison and disrupt society and bring it to an ignoble end. Against such a man, you must be fearless and indomitable, since to grant him victory is to deny yourselves to sanctity of your oath and the grandeur of your vision.
Such men I have met in my lifetime, both in the courtroom and outside it. Society's declared protection against such predators is the court of law before which all men are presume to stand equal, whether mighty or weak. The integrity of the court is the foundation upon which a just society is established.
Without this integrity, the vicissitudes of history will blow society towards the treacherous reefs of destruction and suck it into the whirlpool of oblivion.
A man of the law with a conscience, on the other hand, is the means by which a nation fashions for itself a just, orderly and civilized society, where the least of its citizens can stand proud in his human dignity, and where justice is the yardstick by which the citizen measures himself in his relationship with others and with his God.
Yet, a man of the law should have more than just a conscience. Conscience, too, can be dulled by exigencies in one's life. He may just seek a livelihood from the law. Then, no matter how financially successful he becomes, and no matter how much expertise he acquires in the law and its practice, he remains no more than a craftsman. He rises no higher than the humble plumber or mechanic from whom we expect nothing beyond an honest day's work and an honest charge for work performed, and to whom we would not dream of looking for leadership, guidance, and inspiration. He reduces law to a trade and himself to a mere huckster of legal skills.
What a man of the law should posses[s] is a passion for the truth, a passion for justice. This passion should be of such a magnitude as to give him the power to stand firm when those around him seem to be going mad. It should be of such solidity as to grant him the strength to stand along when all else is turning into dust. It should be of such perseverance as to infuse him with a loneliness that only those who have a vision can endure. It is a passion to keep alive that eternal challenge that justice must be done whatever be the cost.
You are not only men of the law. You are men of vision. Underlying all that you have learned here at the [] is the never-ending theme of passion for the truth, of passion for justice. You vision is forge[d] here, and that vision is what makes you unique among your peers. You do not know yet what life has in store for you, but never sacrifice your vision on the altar of expediency. For without this vision, you shall become hollow inside, you shall become men without souls preying on the innocence and helplessness of your fellowmen. You shall become the unscrupulous auctioneers of history whose honor is on the block, ready to go to the highest bidder.
On the other hand, if truly you remain faithful to your vision, then you are boon to society. You will gaze without favor upon your fellowmen, sifting through facts to arrive at the truth, seeking truth to render justice. The mighty and the weak shall stand naked before you, for they shall draw strength from your knowledge of the law and from your commitment to the truth. Then [and] only then, shall justice truly prevail and upon this earth will shine a piece of heaven. For, what is justice but an attribute of God Himself?
Walk firm, therefore, and walk with courage, upon [t]his path you have chosen. Let your vision guide you. The law is a noble profession, and it is professed by noble men. See to it that you earn that nobility by acting as your fellowman's shield and protector against injustice and oppression.
As future lawyers, you have your tasks cut out for you. You need have no fear that they will prove too much for you if, in taking them up, you hear always in mind that doubt is the beginning of wisdom, that humility is the grace of the wise, that compassion is the virtue of the strong and, above all, that reason is the life of the law, and that the service of justice, which is nothing more than the search for the truth, is one of man's noblest achievements.
Farewell! May you always, in your quest for a better world, walk in the shadow of Him who gave you life and honor.

(Address delivered at Commencement Exercises, March 25, 1981)

I find absolute relevance in the paper of Justice Pompeyo Dias in today's environment when he spoke of the need for a passion for justice, especially when referring to those who have been empowered by the knowledge of the law. It has been said that ignorance of the law excuses no one and I feel that one of the most tragic realities of today is the disregard by the most learned of men in promoting and upholding justice in our society. While most of the populace in our country go on with their lives without having to explore the details and intricacies of the law, some who have familiarized themselves with the legal system act to sow discord and chaos in order to conceal the truth from those who are in search of it. Whether these legal pundits and educated individuals act as accomplices to those who would break the rule of law or those who would choose to acquiesce and leave society vulnerable to corruption and perversion, those who have gained power through knowledge and yet put-off their responsibilities to the welfare and dignity of human society truly lack the passion for justice. I believe that life, if not the operations of the Universe, is an on-going struggle between order and chaos. And though my beliefs graze the ethereal, humanity as creatures created in the image and likeness of God are accountable to their existence, if not to their Creator, to instill some sense of structure and order to their civilization. As Justice Pompeyo Dias had put it, truth and justice are attributes of God. Along the lines of his speech, he recalled how his father left him a note telling him to "Let justice be done, though the heavens fall." This statement also struck me as being the outline of the philosophy that all men educated in the law should live by; that though today's Philippine society has undeniably been afflicted by corruption, apathy and unaccountability, all are enjoined to make a stand to promote justice, seek-out the truth and uphold the rule of law. And against all odds, even if one finds himself alone against the horde of the unjust, he can draw from his passion for justice the strength to seek out the truth through the law becuase the truth indeed will set us free.