Docstoc

The story of a man in a rowing - ISDA.ppt

Document Sample
The story of a man in a rowing - ISDA.ppt Powered By Docstoc
					                                             MOORE, CARTER
                                              & ASSOCIATES
                                              C V
                                              J L




The story of a man in a rowing boat trying to
          slow down an oil tanker

        Paul Moore, Former Head of Regulatory Risk HBOS plc

                       9th February 2010

      Professional Risk Managers International Association
      Agenda

       BBC Newsnight clip 11th February 2009

       A bit about me

       A bit more about the whole story

       The RiskMinds 2009 Risk Managers Survey key findings

       Discussion – what have we learned and what should we do about it?

       Some final thoughts - if we have time
          Advice to those who speak up to “group think” – people who helped me

          Personal observations on financial crisis




MOORE, CARTER
 & ASSOCIATES
C V
J L                    Advisers on risk , governance, regulation & business ethics
      A bit about me

       Barrister & one of UK’s leading risk, governance & regulatory specialists.

       Over twenty four years experience in industry and professional services

           2007 - Today- Telecoms, Consultancy & Charity work.
           2005 – 2006 - Head of Compliance EMEA Marsh Ltd
           2002 - 2005 - Head of Group Regulatory Risk, HBOS
           1995 – 2002 - Partner KPMG, London
           1984 – 1994 – In house lawyer in financial services

       Other – Joe Simpson, hang gliding, motorcycling, sailed across Pacific.

       Risk management is not about not taking them!

       F1 is less risky than angling!

MOORE, CARTER
 & ASSOCIATES
C V
J L                      Advisers on risk , governance, regulation & business ethics
      A bit more about the HBOS story

       Actually blew whistle twice – first time failed

       Second time - Email to Danny Savage BBC News – 16th Sept 08

        “I   think that..the time may now have come when someone who has
        been there / done it / and wears the T shirt (“I was a Senior Risk &
        Compliance Officer who was fired for trying to slow down a bank”)
        speaks out again on what has gone wrong in the financial system and
        what needs to be done to make sure it does not happen again.”



       Motivation was policy change not revenge or celebrity.

       Money Programme – 30th October 2008 – rowing boat analogy.

MOORE, CARTER
 & ASSOCIATES
C V
J L                    Advisers on risk , governance, regulation & business ethics
      Key points from my evidence

       I gave initial evidence to UK Treasury Select Committee 10th Feb 09.

       Key extracts from my evidence:-

          Sales culture markedly out of balance with control systems.

          Cultural indisposition to challenge

          Sub-prime risks obvious to anyone.

          Underlying cause inadequate separation and balance of powers.

          Process, framework and structure without the right culture will fail.

          Emperor’s new clothes, lemmings and pied pipers!



MOORE, CARTER
 & ASSOCIATES
C V
J L                     Advisers on risk , governance, regulation & business ethics
 I reported that the sales culture was out of balance

         “...I certainly knew that the bank was going too fast (and told
          them), had a cultural indisposition to challenge (and told
          them) and was a serious risk to financial stability...(and told
          them)


         “I told the Board to slow down and ....that their sales culture
          was significantly out of balance with their systems and
          controls.”


         “That ...very careful consideration should be given ...as to
          exactly what level of sales growth is achievable, given current
          capacity, without putting customers and colleagues at risk.”


MOORE, CARTER
 & ASSOCIATES
C V
J L                    Advisers on risk , governance, regulation & business ethics
      Sub-prime risks

         “..even   non-bankers        with      no     “credit       risk     management”
          expertise...would have known that there must have been a
          very high risk if you lend money to people who have no jobs,
          no provable income and no assets....


         You simply don’t need to be an economic rocket scientist or
          mathematical financial risk management specialist to know
          this. You just need common sense.




MOORE, CARTER
 & ASSOCIATES
C V
J L                    Advisers on risk , governance, regulation & business ethics
      Inadequate separation and balance of powers

         In simple terms this crisis was caused....because there has
          been a completely inadequate “separation” and “balance of
          powers” between the executive and all those accountable for
          overseeing their actions and “reining them in”


         i.e. internal control functions such as finance, risk, compliance
          and internal audit, non-executive Chairmen and Directors,
          external auditors, The FSA, shareholders and politicians.




MOORE, CARTER
 & ASSOCIATES
C V
J L                    Advisers on risk , governance, regulation & business ethics
      Process without the right culture will fail

         The most important point I made:-

         “There is no doubt that you can have the best governance
          processes in the world but if they are carried out in a culture of
          greed, unethical behaviour and indisposition to challenge, they
          will fail.




MOORE, CARTER
 & ASSOCIATES
C V
J L                    Advisers on risk , governance, regulation & business ethics
      Emperor’s new clothes, lemmings & pied pipers!

         To mix a few well known similes / metaphors / stories, the current
          financial crisis is a bit like the story of the Emperor’s new clothes.

         Anyone whose eyes were not blinded by money, power and pride
          (Hubris) who really looked carefully knew there was something...

         But sadly, no-one wanted or felt able to speak up for fear of
          stepping out of line with the rest of the lemmings who were busy
          organising themselves to run over the edge of the cliff behind the
          pied piper CEOs and executive teams that were being paid so much
          to play that tune and take them in that direction.




MOORE, CARTER
 & ASSOCIATES
C V
J L                     Advisers on risk , governance, regulation & business ethics
 Some of the key evidence that supported my views

       Head of Risk in Halifax...verbatim:-

            "Leadership and focus on risk matters has had no priority....Sales are
             regarded as more important than anything else“

            “risk   management     not    seen     as    a   core    business        imperative   or
             competence....and you know they are animals around here..”

       “Whacker” (CF Dick Fuld, Lehman “Gorilla”)

       Charles Dunstone - two stories

       Reprimands by boss for raising cultural indisposition to challenge

       Refusal to record proper minutes of Bd Mtg and tabling full report.

       “Made redundant” by Crosby – on his own with no HR rep.

       Replaced by sales manager appointed as Group Risk Director.....and
MOORE, CARTER
 & ASSOCIATES
C V
J L                     Advisers on risk , governance, regulation & business ethics
      HBOS competence framework for top leaders?

       Courage - Never backs away from an opportunity to demonstrate
          personal courage

       Key behaviours

         Taking courageous decisions even when they may result in criticism or unpopularity

         Standing up for beliefs in the face of opposition from colleagues

         Saying what needs to be said when others are hold back from expressing real feelings

         Putting yourself on the line in taking responsibility for making tough decisions

         Meeting colleagues in other work areas to talk openly and honestly about the real
          issues



MOORE, CARTER
 & ASSOCIATES
C V
J L                        Advisers on risk , governance, regulation & business ethics
      10th Feb – London Evening Standard front page




 “sunk?”


MOORE, CARTER
 & ASSOCIATES
C V
J L                Advisers on risk , governance, regulation & business ethics
      Evening Standard 10th Feb inside




MOORE, CARTER
 & ASSOCIATES
C V
J L                Advisers on risk , governance, regulation & business ethics
      What happened next?

       Sir James Crosby resigned as Deputy Chair of FSA.

       Crosby and FSA denied my allegations and relied on KPMG report

       Brown, Cameron, Osborne, Vincent Cable called for investigation....

       I stood firm, confident and calm. I did countless media interviews.

       FT story – “They would say that wouldn’t they?”

       After vociferous denials by Crosby and FSA....Total silence! But no
        investigation.



MOORE, CARTER
 & ASSOCIATES
C V
J L                      Advisers on risk , governance, regulation & business ethics
      Daily Mail – 14th Feb 09




MOORE, CARTER
 & ASSOCIATES
C V
J L                 Advisers on risk , governance, regulation & business ethics
      Sunday Telegraph main story – 15th Feb 09

                                                        Sir James Crosby
          Me with the whistle!




MOORE, CARTER
 & ASSOCIATES
C V
J L                Advisers on risk , governance, regulation & business ethics
      Independent on Sunday – front page – 15 Feb 09




MOORE, CARTER
 & ASSOCIATES
C V
J L                Advisers on risk , governance, regulation & business ethics
Key conclusions of Treasury Select Committee / FSA

       Failure of Management

          ”Bankers have made an astonishing mess of the financial system....

          Banks have failed because those leading and managing them failed.”

       Failure of risk management

          “The current crisis has exposed significant shortcomings in the
           governance and risk management of regulated firms.”




MOORE, CARTER
 & ASSOCIATES
C V
J L                   Advisers on risk , governance, regulation & business ethics
Key conclusions of Treasury Select Committee / FSA

       Failure of governance by non-executives
            “[Banks’] corporate governance was often totally ineffective. The
             evidence shows that many non-executive directors failed to act as an
             effective check on, and challenge to, executive managers.” “..non-
             executive directors have operated as members of a ‘cosy club’”

            “...the necessary challenge was missing from governance structures, in
             particular boards.... Evidence from the current crisis indicates that some
             NEDs have struggled to fulfil their role of providing strong independent
             oversight of the executive management.”

       Failure of the supervisory system i.e. The FSA
            But the FSA’s regulatory and supervisory approach, before the current
             crisis ...was not with hindsight aggressive enough...

            “[this] was ...also [a failure] of the supervisory system”

MOORE, CARTER
 & ASSOCIATES
C V
J L                      Advisers on risk , governance, regulation & business ethics
      RiskMinds 2009 Risk Managers Survey

       615 responses.
       Independently analysed by Cranfield
       The responses come from around the globe number as follows:-
          UK – 43%
          US/ Canada – 10%
          Mainland EU – 14%
          Rest of the world – 17%
       47% over 10 yrs experience; 30% senior managers.
       Bankers 25%; asset managers 6.6%; insurance 11%; combination 20%;
        other sector 22%.




MOORE, CARTER
 & ASSOCIATES
C V
J L                    Advisers on risk , governance, regulation & business ethics
      Key findings

       Most important causes greed, remuneration, failures in risk management

       Majority saw the crisis coming well in advance.

       The risks were reported but the executive prioritised sales.....

       Because they were paid to.

       Cultures inhibited effective challenge....(i.e. unethical cultures).....

       Crisis not caused by global circumstances beyond anyone’s control

       Big majority held executive accountable; not regulators or governments.

       Not surprising as they said they saw the risks and reported them!



MOORE, CARTER
 & ASSOCIATES
C V
J L                     Advisers on risk , governance, regulation & business ethics
       Culture (ethics) is most important area for change.

       Capability of non-exec, regulators & line managers in risk is very low.

       Focus for regulatory change should be:-

           Global harmonisation, more prescription on credit and liquidity risk

           More specific standards on effective risk management

           Supervision of culture and ethics

           Rigorous supervision of the effectiveness of internal risk management.

           Higher calibre personnel in the regulators

           Regulators should be accountable in law for their failures

       There should have been a through enquiry to inform policy review.
MOORE, CARTER
 & ASSOCIATES
C V
J L                      Advisers on risk , governance, regulation & business ethics
      Key lessons from my story and survey

       The culture and values are the key – must be led from THE TOP
          Openness, ethics and excellence not fear, blame and excessive pride.

              Cultural disposition to challenge “group think” is key.

              “Never confuse honest dissent with disloyal subversion” - Eisenhower

          Introduce ethical decision making framework. Train everyone.

          Each key document to contain - “Ethical considerations taken into account”

          Rigorously & independently check their culture & ethics regularly

          Note “Self serving statements without corroboration bear no weight”

          Performance management system aligned to cultural requirement.




MOORE, CARTER
 & ASSOCIATES
C V
J L                     Advisers on risk , governance, regulation & business ethics
      An interesting observation on culture

       “Development is impossible without upright men and women, without
        financiers and politicians whose consciences are finely attuned to the
        requirements of the common good.

       Both professional competence and moral consistency are necessary.

       When technology is allowed to take over, the result is confusion
        between ends and means, such that the sole criterion for action in
        business is thought to be the maximization of profit, in politics the
        consolidation of power, and in science the findings of research.”




MOORE, CARTER
 & ASSOCIATES
C V
J L                   Advisers on risk , governance, regulation & business ethics
      The people dimension

       The people dimension is more important than structure and process:-
          Much more competence, independence, integrity and diversity of non execs.

          Risk management and compliance needs to be professionalised

              Its not    about forms & technical knowledge; its about ethics and
               excellence.

              Higher calibre personnel advising on risk, compliance and internal audit.

              Key non technical competencies are:-

                  Deep understanding of the business

                  Relationship management and influencing skills are key

                  Giving “confident & understandable advice & assurance”


MOORE, CARTER
 & ASSOCIATES
C V
J L                      Advisers on risk , governance, regulation & business ethics
Competencies for risk & compliance professionals

          Functional Profile                                                  Functional DNA

       Understanding the business                                                   Client focus
                                                                    Being passionately client focused in dealings with
        Developing a deep understanding of our                                        stakeholders
      clients’ businesses, the risks they face and
            the needs of their stakeholders                                  Technical excellence
                                                                    Demonstrates technical excellence at all times in
            Managing relationships                                   their own area of risk / compliance specialism

      Establishing and maintaining relationships                           Outstanding judgement
      with clients so as to become their ‘trusted
                        adviser’                                       Using a fine-tuned balance of all aspects of
                                                                      knowledge, experience and understanding to
                                                                                      solve problems
       Giving advice and assurance
                                                                                     Creativity
         Providing clients with confident and
      understandable advice and assurance which                     Exploring all options… thinking ‘out-of-the-box’;
                                                                     breaking new ground in exercising judgement
       demonstrates a passionate dedication to
                 technical excellence
                                                                             Integrity and courage
                                                                    Demonstrating personal courage, independence
                                                                    and honesty in exercising judgement and giving
                                                                        advice – leading a culture of openness


MOORE, CARTER
 & ASSOCIATES
C V
J L                             Advisers on risk , governance, regulation & business ethics
      Leadership & Competence Framework

       Understanding the business                  Managing relationships                Giving advice and assurance

         Demonstrates broad and deep            Facilitates discussions and identifies   Uses a broad range of risk management
                                                common ground and differences to           knowledge, experience and tools to
          understanding about general                                                         advise and assure the business
         business issues and challenges          arrive at sustainable relationships
                                                                                            Links information, knowledge and
                                                    Uses questioning & clarifying          experience to form ideas so that an
       Digs deep to obtain information and                                                   event, problem or issue is fully
                                                  techniques to understand views,                      understood
        understanding about the business            attitudes and requirements
            and markets of our clients                                                     Steps back from a situation to see the
                                                Establishes trust by enabling others                 ‘bigger picture’
                                                to express their emotions and views      Helps others to develop broader thinking
       Identifies and gathers information                and respects these              and to consider the wider consequences
          about the clients’ people and                                                       of their requests or decisions
        stakeholders; their perspectives,        Negotiates purposeful agreements
            needs and expectations                  that meet the needs of all              Proposes and evaluates alternative
                                                           stakeholders                  solutions and different ways of solving a
                                                                                            problem before making a decision
            Understands the risks and            Continuously checks expectations           Encourages others to generate and
          appropriateness of the control        and purpose and encourages ongoing       evaluate options and to explore different
                                                                                            perspectives others have on these
        framework within the businesses              participation to share the                           options
                                                       responsibility for risk
                                                                                             By comparing options generates
       Gathers information from a variety           Gains support for ideas from            new and creative solutions to meet
                                                                                                   different situations
       of internal and external and/or new       businesses & others by relating the
         sources and puts it into context        benefits directly to their interests    Is visible and credible and demonstrates
                                                             and needs                     value; is clear about own position on
                                                                                            issues and can clearly describe the
        Understands issues and exercises                                                      services of the department to its
                                                 Uses powers of persuasion rather                       stakeholders
         judgement having regard to the                     than veto
            businesses’ points of view                                                         Inspires confidence in business
                                                                                          colleagues and other stakeholders that
                                                                                           risk is being identified and managed
                                                                                                          effectively
MOORE, CARTER
 & ASSOCIATES
C V
J L                                Advisers on risk , governance, regulation & business ethics
      Structure, process and framework

       Points on structure, process & framework
          If you want someone to do “A” pay them to do “A”.

          A new lead non-executive accountable for “Oversight, Assurance and Ethics”

          Control functions to report formally to this non-exec.

          An annual risk based, detailed programme of oversight and assurance.

          “Self serving statements without corroboration bear no weight”

          Formal protections for risk, compliance & internal audit managers.

          Better whistleblowing procedures for rest of staff see specific slide




MOORE, CARTER
 & ASSOCIATES
C V
J L                     Advisers on risk , governance, regulation & business ethics
      Strategy

       And, of course, the strategy must be aligned

           Business models that focused on sales and growth to the exclusion of
            controls   i.e. risk management, governance and compliance will lead to
            crisis.

       And so.......................all elements must be aligned.




MOORE, CARTER
 & ASSOCIATES
C V
J L                     Advisers on risk , governance, regulation & business ethics
  ‘systems thinking’ – the key elements must align

                                           STRATEGY
                                           •The road-map
                                          •Broad objectives
                                        •The overall context




          PEOPLE                                                                CULTURE
                                                                                     •Vision
           •Skills
         •Knowledge                        Leadership                        • Values / ethics
                                                                             •Management style
         •Competence
                                                                            •Operating principles
        •Commitment




                                          STRUCTURE
                                     •Architecture / framework
                                         •Functional analysis
                                       •Organisational design
                                       •Processes and controls
MOORE, CARTER
 & ASSOCIATES
C V
J L                    Advisers on risk , governance, regulation & business ethics
 Advice to those who speak up to “group think”

       “We only grow by taking risks, and the most difficult risk of all is to
        be honest with ourselves and others. Rick Warren


       You get transformed by trouble” Rick Warren


       “Well, If I lose my reputation, at least that will be one less thing for
        me to worry about” Blessed Mother Theresa


       “The truth will set you free” Jesus




MOORE, CARTER
 & ASSOCIATES
C V
J L                    Advisers on risk , governance, regulation & business ethics
Some personal observations on the financial crisis

       Our leaders are the high priests of Mammon & Me:-

          Me, more, now. Lend, lend, lend; buy, buy, buy.

          “Take the waiting out of the wanting”

          “You’re worth it”

       In this mess there is a message of Hope.

          Money itself is not the problem. The love of money is the problem.

          Move from GDP (GmeP!) to GQualityP (GyouP!)

       Politics should not about left or right but about right or wrong.

       Private funding of political parties gives the rich and powerful too
        much say.
MOORE, CARTER
 & ASSOCIATES
C V
J L                    Advisers on risk , governance, regulation & business ethics

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:2
posted:5/16/2012
language:English
pages:33
shensengvf shensengvf http://
About