Risk Officers

The Future of the Chief Risk Officer

 



A strong, commercially minded, proactive risk management function has never been more important. New forms of risk are emerging, and regulation is tightening. The impacts of macroeconomic events—including COVID-19 —are being felt in the form of an impending recession, and lack of consumer and business confidence will most likely undermine a rapid recovery.

Understanding the impacts of these risks to your business is critical.

Having placed many senior risk management professionals globally—and from regular conversations with market leaders in the field—we have a three-part thesis on the way in which the risk function needs to develop at scaled organizations.

Risk Function

Phase 01

CLOSING THE GAP BETWEEN RISK AND COMMERCIAL UNITS

Developing strong business acumen within risk, to respond to planned and unplanned events.

Phase 02

BUILDING DATA AND DIGITAL FLUENCY IN RISK

Understanding the potential benefits of technology adoption, and how data analytics can develop sophisticated models, predictive tools and greater understanding of trends.

Phase 03

DEVELOPING BENCH STRENGTH FOR THE RISK FUNCTION OF THE FUTURE

Rewarding, retaining, training and cross-training internal successors, as well as continuously infusing fresh outside talent.

PHASE 01: Closing the gap between risk and commercial units

One of the greatest challenges facing risk management is the emergence of factors for which historical models are insufficient. As companies faced a global pandemic, new sources of data and insight needed to be identified to better predict risk and inform responses, sources that have not previously been a core part of risk modelling.

A commercially-astute risk function is able to consider the business holistically. The chief risk officer who develops a collaborative partnership with the the business’s commercial leaders, working with them from the start of an issue, provides stronger lateral thinking around the use of these data and insights, better preparing the business to deal with emerging risk factors.

In response to this, we see more risk officers than ever being sourced from outside risk functions, creating the versatile and well-rounded business experience that is critical to their success.

RISK OFFICER APPOINTMENTS FROM OUTSIDE THE RISK FUNCTION
Pre-2018Post-2018
Banking 20% 44%
Insurance 50% 56%
Asset Management 44% 44%
  • Source: Russell Reynolds Associates analysis, 2020

In particular, we see the role of risk as increasingly aligned to general management functions, with more and more overlap between the functions of risk and the commercial interests of the wider business.

RISK APPOINTMENTS FROM GM FUNCTIONS, PRE-2018 VS. POST-2018
Pre-2018 16% +38%
Post-2018 22%
  • Source: Russell Reynolds Associates analysis, 2020

PHASE 02: Building data and digital fluency in risk

COVID-19 has accelerated the need to ensure that risk functions are flexible, agile and adaptable—but this trend was well under way before the crisis began, and will outlast it. Digital and data analytics are fundamental in allowing organizations to react to more stringent regulatory requirements without incurring excessive personnel spending—and chief risk officers need to be sufficiently “digitally fluent” to understand the options available to them.

CROs should, for example, be able to:

  • Move artificial intelligence and machine learning (AI/ML) to the core of everyday processes such as AML and Know Your Customer (KYC) requirements—reducing the overwhelming headcount burden that these processes can pose to organizations.
  • Fully leverage the cloud in risk infrastructure to reduce costs and increase flexibility—allowing new systems and technologies to be much more readily adopted in the future.
  • Deploy advanced analytics techniques to analyze risk across the organization—providing the executive team and board with full, data-driven risk models, scenario planning and predictive modelling that will enable better decisions on allocation of resources.
  • Bring modern data management practices to risk—allowing a much more regulator-friendly central source of data on risk factors.

PHASE 03: Developing bench strength for the risk function of the future

As the risk function continues its rise to the top of the house, and increasingly becomes a critical voice at the leadership table, companies need to sustain this momentum by building out their risk talent bench—taking a long-term view in order to future-proof the risk function.

Organizations looking to create a robust risk function for the future should:

  • Aggressively hire in the middle ranks of risk functions to develop a forward-looking risk culture, looking beyond typical risk backgrounds to include those with experience in functions including commercial, general management, technology, compliance, audit, finance, etc.
  • Proactively develop risk succession planning processes, embedding next-gen risk competencies into the organization’s succession management framework and succession planning.
  • Reward top performers and high-potential leaders.
  • Continuously develop next-gen talent by providing them crucial experiences and making emerging competencies and attributes (e.g., data fluency, commercial acumen, etc.) a core focus of their leadership development plan; cross-train rising risk leaders to help them develop the broader skill set needed to succeed.

Now that risk has a seat at the “top table”, it is crucial that the function ensures continued growth through developing a pipeline of next-gen leaders.

As the importance of the role increases, the ways in which the CRO role is set to evolve are numerous. When contemplating a new model for the risk function, some key questions to consider include:

Commercial partnership

  • Does your chief risk officer have credibility and depth of risk experience across multiple economic cycles?
  • Does your risk function have a deep commercial understanding, in order to genuinely partner with the business in an environment that is uncertain, ambiguous and turbulent?
  • Is the risk function respected by the business and positioned to be proactive, involved in decisions early and seen as an enabler?
  • How effective is the risk culture across the organization? Does the business see risk as a business enabler or a policing function?
  • How much front-line business experience do you have within your broader risk team?
  • How well do you see your risk team “bridging the gap” between risk management and commercial business units?

Digital/data fluency

  • Is the chief risk officer able to balance the needs of the role, while transforming for the future? Or are they distracted by continuous regulatory changes and ongoing reporting requirements?
  • Has your risk function transformed from a traditional business unit to one that leverages technology, data and analytics to inform decision making?
  • Is your risk function “digitally/analytically fluent”—does it understand the role of digital and data in building a streamlined, effective risk function?
  • Are your other technology functions—particularly data management—sufficiently aligned with risk to create a holistic risk management data strategy?
  • How much time does the risk team spend with the technology executives and the chief data officer?
  • Does the risk function understand how to leverage data in a sophisticated way? How sophisticated is the use of advanced technologies, e.g., artificial intelligence and machine learning?

Talent bench buildout

  • Do you have a robust team of middle management of risk leaders—reporting to the chief risk officer —that could be potential succession candidates?
  • Do you have a succession plan in place to ensure a smooth transition process?
  • How diverse is your risk function? Can it balance traditional risk expertise with the innovation/digital literacy that genuinely transforms the function?
  • How innovative are your risk leaders? Do they continuously stay well-informed of technology trends in the risk and compliance functions?
  • Is there a leadership development plan in place that will continuously train your next generation of talent, providing them with the skill set needed to succeed in the evolving role?

AUTHORS

  • MINA AMES co-leads Russell Reynolds Associates’ Fintech practice and is a core member of the Financial Services sector. She is based in London.
  • JAKE STRONG is a member of Russell Reynolds Associates’ Financial Services sector Knowledge team. He is based in London.
  • ELLEN YAFFE is member of Russell Reynolds Associates’ Financial Services sector. She is based in New York.
  • BEIJING ZHU is a member of Russell Reynolds Associates’ Financial Services sector knowledge team. She is based in New York.
Discover more about our expertise in

Risk Officers


We find leaders who are experts in their field and can be valuable business partners.
Learn More

Additional Expertise


Sign up for our newsletter


Get the newsletter that prepares you for what's next with valuable insights across industries and geographies.












Discover more about our expertise in

Risk Officers


We find leaders who are experts in their field and can be valuable business partners.
Learn More

Featured Insight


Additional Expertise


Sign up for our newsletter

Get the newsletter that prepares you for what's next with valuable insights across industries and geographies.
The Future of the Chief Risk Officer