Flat battery

*/By Stephen McPhie, CA
Partner, RSD Solutions Inc./*

*/Follow us on Twitter/* [1]

I have an old second car that has not been used for quite some time sitting
in the garage.  My main car sits outside and was covered with a thick layer
of ice this morning.  Faced with the school run, I decided to use the
relatively warm and ice free old car in the garage, kept just for such
situations.  Inserting the key in the ignition I heard the dreaded click and
nothing more.  So it was a lot of scraping, frozen hands and a cold drive to
my daughter's school in the outside car.  I had been comfortable with the
fact that I had a back up system, and ignorant to the fact that it was not
working due to neglect.

In your business, do you feel comfortable that you have adequate back up
plans and systems for when unexpected events occur?  Do you constantly
review and test such plans and systems to ensure they are fit for purpose?


[1] https://twitter.com/rsdsolutions

Risk management begins with common sense

*/By Stephen McPhie, CA
Partner, RSD Solutions Inc./*

www.RSDsolutions.com [1]

info@RSDsolutions.com [2]

*/Follow us on Twitter/* [3]

*/Repost from blog dated January 11, 2011/*

Andrew Bailey of the Bank of England and designated deputy of the new UK
Prudential Regulation Authority, which will supervise banks, has made some
scathing comments in the Herald newspaper [1] [4] about how RBS and HBOS were
managed in the years leading up to their massive government rescues that
required tens of billions of pounds of taxpayer funds.

His comments are extensive but summed up by his comment:  "… people who
ran those two institutions just lost sight of what I would call sound
principles of banking."

I was working in the investment banking sphere in the City of London in the
early 2000's and observed RBS in the wake of its acquisition of NatWest in
early 2000.  At the time, the acquisition and integration was arguably the
best executed and most successful of any large bank merger worldwide. 
However, the bank then appeared to aggressively pursue a strategy of buying
market share.  I saw it commit large amounts to many syndicated leveraged
transactions for inadequate remuneration in terms of the risk.  Some
borderline loans led by other banks only succeeded because of this.

Fred Goodwin, the aggressive head of RBS, seemed to want to make his
institution the largest bank in the world and he almost succeeded before the
pile of cards came crashing down.  From 2001 to 2007, RBS's assets
doubled, mainly through a string of acquisitions.  This culminated in the
disastrous acquisition of ABN Amro, a complete basket case at the time. 
Shortly thereafter, RBS required a government rescue.

In my time in the City, I wondered what RBS's balance sheet would look like
if there were a recession.  Many people attributed RBS's downfall to the
ABN acquisition.  This may have been the straw that broke the camel's
back, but it seems that RBS's balance sheet had been weakening
significantly beforehand.  It seems that Andrew Bailey agrees.  He said,
talking about the pre-ABN era:  "I think there was very rapid expansion of
the investment bank.  I think the controls around the expansion of that
investment banking activity were clearly not adequate."

At the same time, Andy Hornby was running HBOS – at least he was supposed
to be.  He had been a great success at ASDA (Wal Mart's UK subsidiary) in
running the clothing retail business.  He seemed to take the large volume,
low margin mentality into the property lending business at HBOS with
disastrous consequences.  (HBOS was easily Britain's largest mortgage
lender and also had very large exposures to property developers.)  Many
people blame Peter Cummings, the head of the corporate bank, as being the
main culprit for the debacle but it is questionable whether or not his boss
had any ability to exercise any sort of oversight on his activities. 

At HBOS in 2005, Paul Moore, HBOS's Head of Regulatory Risk, warned that
the bank was becoming too risky.  Shortly after that he was forced out of
the bank and was replaced by someone he claims had a sales background.

In the cases of both RBS and HBOS, effective and prudent risk management
seemed to go by the wayside in the interests of growth and, perhaps, feeding
giant egos.  In fact, never mind sophisticated risk management set ups,
simple common sense seemed to be absent.  (The applicability of the term
common sense to the Financial Services Authority at this time is another
topic.)

Interestingly, Andy Hornby has returned to his retail roots as Chief
Executive of Alliance Boots, Britain's largest drug store chain.

------------------------------------------------------------------------------
[1] [5] See
http://www.heraldscotland.com/business/corporate-sme/damning-verdict-delivered-on-former-rbs-and-hbos-chiefs-1.1079137
[6]

 


[1] http://www.RSDsolutions.com
[2] mailto:info@RSDsolutions.com
[3] https://twitter.com/rsdsolutions
[4] #_ftn1
[5] #_ftnref1
[6]
http://www.heraldscotland.com/business/corporate-sme/damning-verdict-delivered-on-former-rbs-and-hbos-chiefs-1.1079137

Funny Business

*/By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc./*

*/Follow us on Twitter/* [1]

In the October 12 edition of the Economist, there is a short article titled
"Funny Business".  It highlights that humor not only helps to sell
products as in humorous advertisements, but it also helps to sell safety
messages.  "Jokes can make serious messages more effective" is a direct
quote from the article.  Goodness knows it is a worth a try, but has anyone
seen a risk manager with a sense of humor – ever


[1] https://twitter.com/rsdsolutions

Blogs

*/By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc./*

*/Follow us on Twitter/* [1]

The worst part about writing a blog is "feeding the beast", or in other
words keeping new ideas flowing.   I have been writing this series of blogs
for about 5 years now, and admittedly ideas for new blogs come easier at some
times versus others.  (For example you can probably tell I am currently
struggling for new ideas by the mere fact I am writing this specific blog
…)

The best part about writing a blog is "feeding the beast", or in other
words keeping new ideas flowing.  Keeping a blog series going for 5 years
forces you to keep searching for ideas and new ways to present old ideas.

Perhaps risk reports should look more like blogs.  If nothing else it would
help to bring out the best and worst traits of risk reporting and hopefully
generate more ideas. 

(Another blog into the hopper.)


[1] https://twitter.com/rsdsolutions

Humans

*/By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc./*

*/Follow us on Twitter/* [1]

As I write this I am watching an afternoon of college football.  A
commercial that seems to be in a pretty frequent loop is by an insurance
company.  The theme of the commercial is "humans".  Basically the
commercial shows some silly situations that humans get into that ultimately
require insurance.  The background music is "I'm only human" by The
Human League.  If you watch American college football I suspect you have
seen the commercial I am talking about.

The theme of the commercial – humans do silly things that lead to mishaps
– is something that all risk managers need to remember.  Meanwhile this
has to be a short blog.  The commercials are over and the game is getting
exciting.


[1] https://twitter.com/rsdsolutions

Rocky Horror Picture Show

*/By /**/Rick Nason, PhD, CFA/*
*/Partner, RSD Solutions Inc./*

*/Follow us on Twitter/* [1]

Some of you of a certain age will remember going to see the Rocky Horror
Picture Show while you were in college.  I certainly do.  We dressed up,
packed up our newspapers, water squirters, burnt toast, confetti and of
course our outfits.  Those who know me, and are familiar with Rocky Horror
can probably guess quite easily which character I always went as.

Our daughters grew up in a household with a well worn and frequently watched
VHS of the movie.  As this past week was Halloween, there was of course a
midnight showing at the University.  My daughter in preparation for the show
asked me to sit with her and watch the show so she could get a refresher
course on all of the audience lines and antics.  After an upgrade of her
Rocky Horror education she was excited about going to the show.

However, it turned out there was a problem – none of her peers, and few in
the audience knew the audience participation protocols.  The audience was
too young.  They did not have the "institutional knowledge" of Rocky
Horror.  The experience was a bit of a letdown for my daughter.  Too bad
– Rocky Horror is great fun to see.

With the demographics being what they are in the corporate world, there is a
generational shift of a different kind occurring.  Lots of people talk about
demographic risk – namely that there is a huge roll-off of seasoned workers
who are baby-boomers who are starting to retire and the trend is going to
accelerate in the next few years.  Many corporations are trying to get
bodies into place to replace the retiring workers.  But what about making
sure the institutional knowledge gets transferred?  How many corporations
are going to become the equivalent of watching the Rocky Horror Picture Show
in a theatre where not enough of the audience knows the participation parts?

Rocky Horror Picture Show is a fun show to watch even without audience
participation – however it is a whole lot more fun with it.   How aware
is your organization of the various implications of demographic risk?


[1] https://twitter.com/rsdsolutions

Complicated Watches

*/By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc./*

*/Follow us on Twitter/* [1]

Just finished reading one of those luxury magazines that you always find in
Airport lounges.  As usual there were lots of advertisements for
uber-expensive and uber-complicated watches.  I have to admit that I find
the technology behind these watches fascinating and the watches themselves a
marvel of engineering and craftsmanship.  However in this day and age do you
need a watch that tells you the moon cycle, has an anti-gravity correction
and one that tells you the day of the week?  I suspect that if you need a
watch to know what the day of the week is then you are not likely to be
bright enough to command enough of a salary to be able to afford such a
watch. 

The watches are fantastic engineering, but the bells and whistles have
virtually no practicality – the typical $300 smartphone can do a lot more
and do it a lot more efficiently.  In many cases though complicated watches
remind me of the risk management systems that many companies have – lots of
exotic complications, but subpar practical performance compared to simpler
more practical systems.  The same goes for techniques.

If the goal of a watch is to tell time then a $50 watch will do that for you
just fine.  However I realize that virtually everyone who buys and wears (as
opposed to buying them for a collection or as an investment) a watch that has
a cost in six figures is trying to make a statement. 

Is your risk management system for show, an attempt to make a statement? 
Does it have lots of bells and whistles, providing output that the typical
manager should understand in any case – the equivalent of a watch telling
the wearer the day of the week?  Or is your risk management system more
focused on the actual task at hand?


[1] https://twitter.com/rsdsolutions