400% increase in Demand for Risk Professionals, By Shane PhillipsEMEA, Executive Search, Expert Opinion, Finance, Functions Monday, October 3rd, 2011
With markets vacillating between peaks and valleys, rogue traders running wild and natural catastrophes producing black swan events in all four corners of the earth, Risk professionals are in high demand. Stanton Chase International has experienced a 400% increase in demand for Risk executives over the last 5 years. From Market Risk, Operational Risk, Credit Risk, Investment Risk, Reputational Risk, to even niche technical specialists such as Quantative Risk Analysts, organizations are deepening and widening their risk functions. While front offices are being down sized and equity traders feverishly try to escape the hatchet man, Risk professionals sit comfortably in the eye of the storm.
Globalization has made markets more interconnected and thus much more volatile. Dr. Linda Gratton Professor of London Business School, who has been ranked one of the top 20 business thinkers of our time by the Financial Times, predicts that the market cycle will occur more frequently and with greater intensity. Hedge Fund guru George Soros and prophetic author of Black Swan, Nassim Taleb, also echo Dr. Gratton’s sentiments; moving forward we are simply going to see the effects of an interconnected global market place and banks and other businesses are going to have to respond appropriately.
The response has been epic, and is now being termed “The Rise of the CRO”. The role is only 18 years old as the first CRO, Mr. James Lam, was appointed in August 1993 at GE Capital. GE Capital created the role for Lam by combining the functions of Credit Risk, Market Risk and Liquidity Risk. Lam coined the role Chief Risk Officer and the rest is history. Prior to 1993 risk specialists could only hope to ascend to titles such as Chief Actuary, Head of Credit, or Asset/Liability Manager before driving straight into an unforgiving career cul-de-sac.
Even as little as 10 years ago the vast majority of Insurance Companies did not have a CRO despite the fact that they are in the business of managing their client’s risk! By 2005 approximately 65% of Financial Services Companies had a Chief Risk Officer, an impressive number in comparison to the less then 5% who did in 1995. Fast forward to the present and many banks are now flirting with the idea of making the CRO the fourth C in the C-Suite along with the CEO, CFO, and COO. In fact it would be a jaw dropping tale if a high street bank did not have a CRO by now. Moving at light speed the CRO has become a pillar of the institution and most analysts predict this executive function is still in its nascent stages of development.
If the current economic meltdown was not enough fuel to rocket CROs up the corporate ladder, Basel III may be the after burner they were looking for. With central banks desperately trying to get a grip on the private sector and sovereign debt out of control, regulators are becoming increasingly demanding. The new restrictions being placed on banks will require bigger compliance teams but it will also increase the pressure on risk departments who now have more stringent guidelines to work within. In a survey by The Economist Regulatory Compliance ranked as one of the top priorities for Risk Management and many banks are now sweating under the new rules. This type of pressure from the regulators is forcing banks to invest in Risk, Compliance, Legal and other shared services to hedge their possibility of being non-compliant.
The recent developments in IT have also been a catalyst to the growing demand for CROs as medium sized companies can now afford complex risk modeling tools; tools which were previously reserved for only the biggest of bulge bracket banks. This new capability justifies the need for a risk team. It is even trickling down to the pedestrian investor who can now access sophisticated risk mapping tools on the net.
The effect of IT on Risk is multi-dimensional as it may allow organizations to do more advanced modeling but it also brings the challenge of system integration complimented by the creation of gargantuan data sets. How can Risk teams capture the data on risk events and integrate that data onto a multitude of systems to build a clear and accurate view of risks across the business? Financial services companies in particular struggle to integrate risk systems, to capture data on risk events, and to measure operational risk. Even as you read this article new areas of Risk are being developed and as such new roles and Risk functions are being created.
From being non-existent 20 years ago to becoming a quintessential player, the Chief Risk Officer has experienced a phenomenal ascent. While some executive positions are being seared by the heat of a financial meltdown, Risk executives are experiencing healthy double digit growth. The drivers pushing the market equity of Chief Risk Officers ever higher are numerous and will continue to exert upward pressure for at least another 5 years. The bottom line is that banks, insurance companies, investment groups, sovereign wealth funds and the like, will all be forced to grow their risk teams in order to comply with the new market conditions. Stanton Chase International’s outlook for the Rise of the CRO is very bullish and predicts a 44% increase in demand for Risk professionals in 2012 alone.
Shane Phillips MENA Regional Practice Leader Financial Services