And the information is all on the dashboard?
They’re all on the dashboard. But it’s the interpretation of that quantitative information, its relation to the real world and the strategies that were undertaken, which is the value-added thing that the risk management department can give.
So we have to have real people who understand real businesses and who have a strong commercial understanding of risk management, rather than people who are quantitatively gifted, but have no other skills.
RISK MANAGEMENT TEAM
How big is the risk management team?
We’ve got 32 people in the risk management team, plus some administrative staff. We have a central quantitative function here in Hong Kong, and [the group risk manager] is based here in Hong Kong, as are the head of market risk, operational risk and credit risk. We also have people in each of our main regional hubs, in Europe, South America, North America and the rest of Asia.
And those people interact with the business heads in those areas?
They do. They’re encouraged to go and spend time [with them]. They have a very strong understanding of strategies that are taking place.
We’ve now reached to a point where [the risk management department has become a trusted partner]. So now the business heads see that risk is a value-added function, the risk management department is not just consulted in the beginning of transactions because they are mandated to do so, but because they are actually adding value.
Are there any conflicts at all? I’ve heard stories about operating managers saying: Oh, the risk people won’t allow us to do this so our hands are tied; they’re so persnickety; we have all this paperwork to do…
What we’ve done is to develop a way of managing risk in this organisation, where risk managers are ultimately gatekeepers and responsible to the board of directors. But they’re adding value to the organisation. And the more value that they add, the more useful they become and the more information that they are party to.
HOLISTIC VIEW OF RISK
There are different kinds of risks. Is the risk management department overseeing all of them, or are there other operating units that handle some risks?
We have combined all the risk functions under one roof, credit, market risk and operational risk, because you have a lot of transfer of risk across different risk classes.
Let’s say you have an inventory exposure, and you have a choice to sell that inventory, by selling that inventory you’re going to be taking some credit and counter-party risk or by holding the inventory you take some market risk and operational risk in management of the inventory. That transfer of risk needs to be assessed so it makes sense that the people assessing those risks sit together in the same team.
Because it’s possible that you think there’s no risk, but it’s been transferred somewhere else.
Yes, exactly. You need to see it as a holistic chain of risks, just as we see our underlying businesses as a supply chain across the organisation.
I imagine that took quite some doing, just making sure that everything is integrated and seen as a whole, because that is not normally the way things are done.
Well, remember, it’s a physical business. It’s a real business, run by real business managers. These are really practical people, so the approach that we take to risk management is exactly the same. It’s a pragmatic, practical approach, rather than a theoretical approach.
It’s about communication, and an understanding of the end-of-the-line risks in the business that we’re operating in.
2010, Sep 09 
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