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 Twenty years after, it only revealed how risk management practices became outdated against the accelerated evolution of financial markets.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.