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Collaboration—we’re all in it together

Part 3: No one knows it all, so risk management demands cooperation

Collaboration—we’re all in it together

In my prior blog post I discussed Agility, one of the essential attributes of a strong risk culture, which are:

Vigilance—Being alert to emerging threats and opportunities.

Agility—Deciding and acting in time.

Collaboration—Being able to work together effectively on risk issues.

Communication—Sharing information and ideas about risks.

Discipline—Knowing and doing what is right from a risk perspective

Talent—Attracting and motivating people who have the necessary risk knowledge and skills.

Leadership—Inspiring, supporting, practicing and rewarding good risk management.

This time I will discuss Collaboration—being able to work together effectively on risk issues so that different skills and perspectives are properly represented in the final risk decision and its execution.

Many skills go into the whole

We live in the age of specialization. A good solution to any important business problem requires the deft orchestration of many different experts.

• No single person knows enough to fly solo.

• No single field of expertise can fully address a multi-dimensional problem.

• No single business line or organizational unit can balance enterprise-level priorities and interests.

So good solutions require the effective collaboration of many people working toward a common goal. Parochial personal and organizational agendas are put aside. Knowledge is shared freely. Different points of view are aired in constructive debate. Good business judgment is applied to combine these disparate contributions into a solution that is much better than any solution that could have been achieved by any smaller group of experts or organizational units on their own.

At least, this is what we should all be striving for, in meeting banks’ need for risk management success.

In fact, examples of the need for effective collaboration are rife throughout banking.

It is hard to do anything important without the input of many experts, such as business lines, Treasury, Risk, Credit, Operations, Legal, HR, Compliance, and IT—to name just a few. In a well-managed bank, much of the interaction of these experts has been reduced to a well-oiled routine enshrined in corporate policies and management processes.

This reliable routine is necessary, but not sufficient, for successful risk management. The true test of collaboration is how it works in extreme or unusual situations where existing operating practices are not up to the task.

When collaboration goes, so does proper risk management

Sadly, recent history is filled with examples of disastrous risk management decisions that were at least partly due to poor collaboration. Risk experts and business managers failed to work together to model, monitor, and control the risks of individual business lines and the entire bank.

The results were often unpleasant.

• Risk experts could have seen looming dangers—but they were out of the decision loop.

• Risk takers exploited deficiencies in the realism of the risk experts’ financial models for their own personal advantage.

• Not bothering to consult with the relevant risk and business experts, top managers blindly followed their competitors into large and poorly understood exposures.

I will not name names. You can fill in the blanks for yourself.

How to get it right

How does management foster constructive collaboration? 

Increase the willingness of people to collaborate by rewarding people who do and by penalizing people who do not.

This is obvious but it is not often done. If business unit or departmental results are seen as the only measure of success, people will not only fail to collaborate, they will act defensively to thwart any collaborative effort seen as a threat to their unit’s results.

Make collaboration a core value of the company and back it up with action.

Populate collaborative groups with the best talent, not with the lesser lights.

The best people will want to be on the A-team and will see collaboration as a way to win the respect of the organization.

Avoid unnecessary collaboration.

Collaboration is not an end in itself and should be promoted only when there is a solid business case for doing so. Collaboration takes time and resources away from other activities so the benefit must be worth the costs.

If people think collaborative efforts are just feel-good HR exercises, it gives collaboration a bad name.

Avoid groupthink.

Group efforts are not automatically collaborative. We all know of too many committees who were dumber than their dumbest member.

Collaborators must be given permission to challenge company dogma, habitual behaviors, myopia, and conventional wisdom.

Collaborators should not be purely advisory—they should be actively involved in decision-making and execution.

Productive collaboration is hard in the best of circumstances.

In times of great turbulence and uncertainty it is extremely hard.

But the ability to collaborate effectively under pressure is critical to sustained success.

Dan Borge

Dan Borge is the author of The Book of Risk and a consultant on strategy and risk management.  He was the principal architect of the first enterprise risk management system, RAROC (Risk Adjusted Return On Capital), at Bankers Trust, where he was head of strategic planning and a senior managing director. Prior to his banking career, he was an aerospace engineer at The Boeing Company. You can also read a review of The Book of Risk here, "A Risk Management Book That Doesn't Make You Snore."

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