As we approach the 2020 Governance Institute of Australia Risk Management Forum, I thought it may be of interest to review the memorable risk management failures of the last 20 years as well as the development of the Risk Management Profession. A lot has changed in the 20 years, from 2000 to 2020. Systemic market volatility has emerged as a dominant feature in a globalised economy. We’ve seen and continue to see major crises, wars and pandemic and the discipline of Risk and Governance continues to evolve and change.
The Early Noughties (Pre-GFC 2000-2008)
I was just finishing university( this may amuse some of you) and the concept of the Globalised Economy was just emerging. I recall concepts and slogans such as “Think globally, act locally” becoming the norm. One of the more significant risk management failures of the early 2000’s was the Enron debacle. When I think of Enron , I think of the widely used quote “Culture Trumps Strategy”. Enron is the subject of great documentary that is certainly worth a watch and the saga highlighted numerous systemic risk management and culture failures in an organisation that was really sipping on its own Coolade you might say.
In this era, Risk Management as a distinct and separate professional occupation was largely unknown to sectors outside of Banking, Insurance, Resources and Manufacturing and even in those sectors would have been largely confined to systems used to manage financial risk, safety of people at work, infrastructure and engineered processes.
The Noughties (Post GFC 2008-2017)
The 2008 Global Financial Crisis highlighted major systematic corporate misconduct and risk management failures in the financial services sector which ultimately lead to widespread reform. The GFC gave rise to The Basel Accords which continue to have an ongoing impact on the functioning of the global banking sector, including minimum capital holding requirements for financial services entities.
My view is that the GFC really spearheaded the evolution of the “Risk Manager” as a distinct and separate profession that began to be increasingly valued in many sectors where regulation and compliance requirements were high combined with regulators who were keen to take the scalps of companies who failed to measure up. Many of those “Risk Managers” were ex accountants, lawyers, actuaries and insurance professionals and I’m absolutely sure that many of them fell into that role, rather than sought it out.
But off the back of that, the profession continued to develop and became characterised by people who had the ability to analyse legislative requirements, think critically and use systems to synthesise large volumes of information to create better decision making outcomes and reduced exposure for organisations.
The Royal Commission Period (2017-2020)
It feels like the contemporary era has been characterised by what many scathingly refer to as “Regulation by Royal Commission” . This was an era of scandals and subsequent royal commissions involving the CBA, NAB and Westpac to name but a few. It also included formal royal commissions and prudential inquiries into entities in the Financial Services sector, The Aged Care Sector and The Disability Sector. Prudential inquiries coined such memorable phrases as , “Chronic Ease” in relation to organisational culture failures and professionals in sectors such as broking and financial planning felt the wrath of the community and the regulator.
Considering the developments of the last 20 years, the imperative for effective risk management and the value of the Risk and Governance Professional as a clearly differentiated profession has never been greater. Public and regulatory scrutiny of organisations in highly regulated sectors has never been more overt , while liability and compliance requirements placed on organisations, Directors and CEOs continues to lift exponentially.
The pace and velocity of which risk impacts organisations has never been so swift and as a result organisations must continue to be on the leading edge of technology and professional practice in order to achieve success while effectively managing risk and compliance in the context of evolving community expectations shareholders, stakeholders and regulators.