Treasury & Risk: What are key trends in the role of the CRO and risk management in general?
Lam: First, the appointment of CROs is now a global trend. CROs were originally appointed in North America and Europe, but now companies in Asia and the rest of the world are creating the position. Second, boards are becoming much more engaged in the risk management process, encouraging a logical integration between strategy and risk management. Finally, CROs are more involved in key executive decisions as risk management becomes integrated into business processes. A good barometer of the strategic importance of risk management would be CROs being promoted to CEOs, something I think you will begin to see in the next several years.
Treasury & Risk: Should the job of CRO evolve out of ERM or should ERM be the creation of an already installed CRO?
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Lam: It depends on whether you believe in the "big bang theory" or "build it, and they will come." I have seen it work both ways. Some companies hire a world-class CRO to develop an ERM program, while others evolve their risk management to the point where a CRO appointment makes sense. Often a company will decide on hiring a CRO because they have no one with ERM experience to lead the effort. The most important first step for any company is to put in place someone with deep and practical experience. That could be a CRO, a board member or even an outside advisor. At the least, you need an executive sponsor and an ERM expert to launch an ERM project.
Treasury & Risk: To which executive should CROs report?
Lam: At large financial institutions, the CRO often reports directly to the CEO with a dotted line to the chairman of the audit or risk committee of the board. That is the organizational model most financial institutions are moving towards. However, for non-financial companies, it may be appropriate for the CRO to report directly to the CFO if that person can spend more time in providing executive sponsorship in the implementation of the ERM program.
Treasury & Risk: Is a committee a viable alternative to a CRO?
Lam: Committees work best monitoring established ERM programs, not installing them. An alternative approach would be to appoint a full-time ERM champion or project manager. But if no CRO exists, a senior executive, say the CFO, must act as de facto CRO with clearly defined risk management oversight.
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