On Thursday afternoon, while staring into space trying to think of creative ways to explain the concept to risk appetite to our Finance Director, I overheard one side of a phone conversation, going on just outside in the corridor:
“Yes, I know it’s a big deal, but they’re totally sound. There’s literally zero risk of it going wrong. We need to complete this acquisition this month if we want to make the most of the opportunity it provides.”
What is it with our Business Development team and their overly optimistic view on every deal they get involved in? Is someone spiking their team’s water fountain?
My thoughts drifted from risk appetite, which was a welcome relief to wondering when is a risk not a risk? When it’s a dead cert. Does such a thing exist? Hardly ever in my book. Or at least only in the mind of someone so naively optimistic or blinkered by the potential gains that they are somehow able to overlook the potential downside.
Partly this attitude can be dealt with by managing the conduct risk within your business. I’ve sat at desks in offices where senior teams are so incentivised by short term growth that they blindly ignore levels of falling quality or the sustainability of their actions in the longer term. Or they’re so desperate to drive deals that they haven’t really assessed whether the product can be provided at the agreed price for a reasonable profit margin.
However, the other part of managing this risk in organisations has to be employing sensible people who have both a healthy respect for uncertainty and who can set their ego aside enough to be honest with themselves and others about what potential issues exist.
In our business, like many others, new and existing staff are screened to check if they have unsustainable levels of debt or poor credit histories. The thinking seems to be that the existence of these things will make these people easier to exploit by fraudsters or even motivated to commit financial crime themselves. I wonder though, if we should also be looking and asking ourselves, “would I let this person manage my mother’s housekeeping budget?” Let’s understand how they manage their own affairs before we trot out the old adage of wanting people to “manage this business as if it was their own” and heaping on responsibility.
People vary greatly in terms of their personal appetite for risk, from the “life’s too short to worry” and “it’ll never happen” brigades to those who won’t let their teenage children walk to school because they have to cross a busy road. The key to this, as to every aspect in life, ought to be balance.
I really hate to be the person who says no. Risk Managers have such a reputation for this, but after my spot of eavesdropping I did go back to my desk and call the Head of M&A to enquire about the deal this person is working on. I’m popping up there tomorrow to sign the project’s non-disclosure agreement and see the paperwork. Presumably the agreement contains a clause about not discussing the matter in a corridor where I can be overheard.
We live in a world of uncertainties - at least I do. Some people will disagree with this. They’re wrong.
But anyway, back to risk appetite!
Who is the Secret Risk Manager?
The Secret Risk Manager is a senior risk professional working in the City. Over the years, they’ve seen a variety of risk practices - good, bad and ugly - across a variety of industries.
Like many risk professionals, the Secret Risk Manager’s CV has a large unspoken element. They are called upon to be in turns, therapist, coach, detective, mediator, behavioural scientist, parent, mind reader, futurologist, story-teller, philosopher and diplomat.
These articles do not pretend to constitute advice, but only to provide a frank and hopefully thought provoking look into the often frustrating world of those people who help organisations manage their risks. The subject matter is experience based, but fictional.
Any resemblance to actual incidents or persons living or dead is purely coincidental. But let’s face it, there’s not much new under the sun so you’ve probably seen it before.